Pensions are a form of retirement savings, and they are an essential part of
the UK’s social welfare system. However, ever increasing life expectancy has
meant it is necessary for periodic review of UK state funded pension, to prevent
the scheme becoming unaffordable….
The UK Government announced last week that there will be no immediate change to the age at which UK residents will receive a state pension. Under current plans, those born on or after April 6th 1977 will wait until they are 68 to start receiving payments. But there remains every possibility that this may well be amended in a future review, to include people born on an earlier date. Today, both men and women in the UK receive their state pension at aged 66.
Gradual increases in the age at which UK state pensions are accessible mean people in the UK need to rely on private or workplace pensions if they want to retire earlier. In the following text, we will look at both state funded pensions and individual workplace pensions.
State funded pensions
A state funded “Old age pension” was introduced in the UK in January 1909. State funded retirement savings are paid for through a social security scheme (known in the UK as National Insurance), jointly contributed to by employers and employees.
State funded pensions in the UK have a unique policy known as the triple-lock pension protection, which is designed to help protect pensioners from inflation. The triple-lock policy means that the state pension increases every year by whichever is the highest of the following three measures: inflation, earnings growth, or 2.5%. This ensures that pensioners are not left behind as the cost of living increases, and helps to provide a stable and reliable source of income in retirement.
Since 2012, employers in the UK have had a responsibility to provide employees with a workplace pension scheme. This is called “automatic enrolment”.
There are a number of UK pension providers from which employers can choose. Once you have chosen a provider, you will need to decide on the contribution levels for both you and your employees. The minimum contribution levels in the UK are set by the government and are currently at 8%, of which 3% must be contributed by the employer. However, many employers choose to contribute more than the minimum in order to provide their employees with a better pension.
You will also need to enrol your employees in the scheme and provide them with information about their pension entitlements. This includes details about how much they are contributing, how much you are contributing, and how much they can expect to receive in retirement.
Apart from being a legal obligation, there are many good reasons for employers to want to offer good workplace pension schemes. A pension scheme can help to attract and retain the best talent, it shows that you care about the welfare of your employees, and can improve employee morale and job satisfaction.