The government have begun to implement auto-enrolment across the UK. The pension scheme will make it easier for individuals to save for their retirement.

Without adequate savings in place many may be unable to live solely on the subsistence provided by the government pension.

The employer pension scheme will mean that those over the age of 22 years old and below the state pension age, earning over the personal allowance of £8,105, will be automatically enrolled into an employee pension fund by their employers.

In October, organisations with 120,000 or more employees will have begun enrolling their employees in to a scheme. Organisations with 50,000-119,999 eligible employees would have begun enrolling their employees in November.

Currently the auto-enrolment pension scheme require the employee to contribute 1% of their salary before tax relief and the employer to contribute 1% increasing to a 4% contribution from the employee and a 3% contribution from the employer. So how does this affect men working full time? And what are the cost and benefits for male employees?

Whilst employers are legally bound to enrol all employees that meet the requirements, employees do have the option to opt out. For male workers on the average wage, the employee pension solution provides a significant building block for retirement income, particularly for those that do not have any other means of saving.  

The average fulltime working male in the UK earns £30,876 according to PayScale (November 2012). Using this wage and pension calculator found on the Nest website we can calculate the expected valuation of the pension (the assumptions used are shown at the end of this article).  The return on this is dependent upon a number of factors including; charges, investment returns, interest rates and inflation.

 A 22 year old man on this salary contributing the required 4% will invest £54,400 into the scheme by the time he retires at 67. By contributing for his entire working life he may expect an annual income of up to £8,390 at retirement and a tax-free cash lump sum of up to £52,200. A man on this wage starting at an early age is likely to secure a significant pension income at retirement

 A 32 year old on this salary will pay £42,000 towards his pension. In return he may get a tax-free lump sum of up to £33,700 and an annual income of £5,500. Already you can see a considerable difference in the value.

 A 42 year old will pay £29,700 into the pension solution and should receive an estimated tax-free lump sum of £20,000 and a yearly income of £3,380.

 A 52 year old, who has less time to allow a pension fund to mature, would invest £17,300 which would mean he would receive a tax-free pay out of £9,950 and a yearly income of £1,720.

Voluntary contributions and employee pensions packages should ensure that employees are comfortable in retirement.

It should be a priority for employers to communicate to employees the benefits of an employee pension and should ensure that employees are comfortable in retirement Employees that have no expectation of ever being able to retire may become disenchanted and disengaged with both their career and company of employment.

 For employers looking to offer a comprehensive employee pension solution as part of a benefits package should look at employee benefit software to help communicate to employees.

These projected figures are made under a series of assumptions that may affect positively or negatively the final income received in retirement and should only be used as a guideline.

These assumptions include:

·         That you are a basic rate tax payer and that you will receive a basic tax relief on all contributions.

·         That these contributions are made within the contribution limit. Currently (2012/13) this limit is £4,400 but is expected to rise in conjunction with average earnings.

·         Retirement income predictions have been made with the current value of money. This is to illustrate the type of income you would receive in retirement if you withdrew your pension today.

·         That there is a contribution charge of 1.8 per cent on all contributions from the employee, employer and tax relief.

·         That an annual management fee of 0.3 per cent has been deducted from your retirement  fund

·         That contributions made will increase with the rate of inflation.

·         That the inflation rate is 2.5% a year

·         That the retirement fund will grow with inflation. And that it will mature by 2 to 3 per cent a year on average.

·         That at the time of retirement you will purchase an income for life from a retirement income provider.

·         That an interest rate of 3.7 per cent is applied to a retirement income that doesn’t increase with inflation

·         That at the time of withdrawing your retirement fund you are 66 years of age.

Other important bits of information: 

·         You may have other sources of income that you plan to use on retirement.

·         A retirement income provider may consider a number of circumstances that impact the income received on retirement; your health, area in which you live in and if you smoke are all variables that may be considered.

·         These predictions do not consider income tax on your retirement income.

·         These estimates do not consider increases in pay or promotions which may increase that amount contributed to your retirement fund.

·         Tax rules and legislation that affect your retirement fund may change. This will affect the income you receive on retirement. 

·         By law UK retirement providers have to give both men and women the same rates for retirement income.

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