Many workers may not realise that their next pay packets could look a little leaner as we reach the final stage of the government’s auto-enrolment pension scheme.
Anyone who employs any kind of worker, including a nanny or carer, who earns more than £833 a month and is over 22, now has to enrol them into a pension scheme, and contribute to it.
Auto-enrolment has been introduced gradually since October 2012. Employers were given a grace period in which to enrol employees, however the last of these, which applies to those who hired staff between July and September last year, runs out on February 1.
Many domestic employers will enrol their workers through a payroll scheme, which they expect will do most of the administration. However, new employees may find that pensions contributions are deducted from next week, before they have been sent any information about why, or where their pension is being invested.
Employers are only legally obliged to write to staff within six weeks of their scheme starting, according to the Pensions Regulator.
Advertisement
Times Money contacted several nanny payroll companies, but only one said that it had alerted nannies to the upcoming changes.
A spokesperson for Pay My Nanny, a payroll service, says it would expect employers to inform employees. They are under no obligation to explain why they have chosen a particular scheme.
Baroness Altmann, the former pensions minister, says: “There seems to be a serious glitch in communication between payroll companies and employers. Somehow the scheme is not properly ensuring that people know what is happening to their money.”
With many nannies not used to the idea of a staff pension and many “micro” employers, such as parents, unfamiliar with the system, there is likely to be confusion when contributions are deducted, says Baroness Altmann.
Pension providers should send employees a welcome pack detailing their scheme once they are enrolled. If they choose to opt out, they must do so within the first month, and they will be automatically re-enrolled after three years. Jonathan Watts-Lay, a director at Wealth at Work, a financial advice company, says there is a consensus that even when contributions reach their peak level (8 per cent next year) it will not provide most members with a comfortable retirement pot.
Advertisement
Auto-enrolment: the facts
Anyone aged between 22 and up to the state pension age earning more than £833 per month (£192 per week) must be enrolled into a pension.
Contributions start at 2 per cent of qualifying earnings (more than £5,876 a year): 0.8 per cent from the worker, 1 per cent from their employer and 0.2 per cent in tax relief from the government. In April, the minimum total contribution will rise to 5 per cent (2.4 per cent from the worker, 2 per cent from the employer and 0.6 per cent from the government) and from April next year they will hit 8 per cent (4 per cent from the worker, 3 per cent from the employer and 1 per cent from the government).