Will new rules mean a pension cut for you?

UK notesGareth Fuller/PA Wire

The government is bringing in new pension rules, which are meant to put a stop to the pensions crisis - and ensure everyone has a workplace pension. Unfortunately, the experts warn, this is actually going to make matters worse for thousands of people - who will end up with less money now - and in retirement

So how could the rules backfire like this?%VIRTUAL-SkimlinksPromo%

New rules

The new legislation brings in what is known as auto-enrolment. It means that over the next few years, every employee will be automatically enrolled in their workplace pension. Your employer will be forced to contribute 3% of salary, you will have to contribute 4%, and the government will top it up with another 1% in tax relief.

It is being touted as an end to the pension crisis, because without anyone having to lift a finger, they will automatically be building a pension to make their retirement that bit more comfortable (although you can choose to opt out if you want).

Worries

However, this isn't the full story. First of all, these levels will be gradually introduced by 2018. In the interim, employers will be drawn into the scheme slowly - and contribution rates will start at 1%. That's a pittance, which is not going to make the slightest bit of difference to your retirement.

Second, even at 8%, the rate of contribution won't be enough to ensure a comfortable retirement. A recent Friends Provident survey found that just 14% of people thought that saving the equivalent of 8% of their salary each month would be sufficient to fund a comfortable retirement.


Smaller pensions

And third, the new rules could mean that employers who currently put far more than 4% into pensions for each member, use this as an excuse to bring their contributions down.

Aviva research has found that 26% of employers are currently looking at making some changes to their pension scheme - and you can be certain that they're not looking to contribute more to each member of staff.

The unions have confirmed that they are in negotiations with a number of employers who are working to make schemes less generous.

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Why?

Employers argue that they now have to enroll every member of staff, which is going to prove far more costly than their current arrangements. In fact, according to DWP research, 74% of employers said they expect their pension costs to increase following auto-enrolment. They say this means that they have to cut the cost for each individual.

Even more worryingly, 42% of employers say that they will absorb any increase in pension costs through lower wage increases - so that's a smaller pension and lower wages - as a result of legislation that was meant to solve the pensions crisis.

The experts say that this reinforces how important it is for us to understand our own circumstances, and take control of our own retirement planning. That's great news, because lord knows we don't have enough to worry about.

But what do you think? let us know in the comments.

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If you wear a uniform of any kind to work and have to wash, repair or replace it yourself, you may be able to reclaim tax paid over the last four years. For some people, this could mean a windfall worth hundreds of pounds

The interest you receive on savings accounts (with the exception of cash Isas) is automatically taxed at a rate of 20%.

Higher-rate taxpayers therefore tend to owe money on the interest they are paid throughout the year. If, however, you are on a low income or not earning at all, you should be able to claim all or some of the tax deducted back

You can apply for a refund of vehicle tax if you are the current registered keeper or were the last registered keeper of your vehicle that no longer needs a tax disc

If you pay tax on a company, personal or State Pension through PAYE (the system employers use to deduct tax from your wages), you may well end up overpaying

There is a limit to the amount you need to pay in NI, whether or not you work for an employer.

Instances in which you may find that you have overpaid include if you work two or more jobs and earn more than £817 a week and if you move from self-employment to employment, but continue to pay Class 2 National Insurance contributions

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