What is pension auto enrolment?
If you are aged 22 or over and earn £10,000 or more, your employer must offer you a workplace pension to save for your future. Here’s how it works.
Pensions are long term investments. You may get back less than you originally paid in because your capital is not guaranteed and charges may apply.
What is auto-enrolment?
This is where instead of “opting in” to a workplace pension scheme, you are enrolled automatically.
Automatic enrolment was introduced in October 2012 and requires employers to provide a workplace pension for their eligible employees.
The auto-enrolment process was introduced in stages since its introduction, with larger companies starting first, followed by smaller ones. All firms (even new ones) should now be part of auto-enrolment. As a result, millions of us have benefitted from boosting our retirement savings.
Make the most of your tax-free ISA allowance.
How does it work?
If you are an 'eligible employee' you will automatically start paying into a workplace pension set up by your employer, who must also make a contribution on your behalf.
The government will also contribute a percentage towards your pension in the form of tax relief.
The date your employer starts auto-enrolment is called the “staging date”.
You can use your PAYE (Pay As You Earn) reference, to find out when your employer’s staging date is by visiting The Pensions Regulator website.
Where can you find your PAYE reference?
This is found on your payslip, or you can ask your payroll department.
Do you qualify?
Only if you are an 'eligible employee'. This means you are:
At least 22 years old
Working in the UK
Earning a minimum of £10,000 each year for the tax year 2021/22
Not paying into a workplace pension already
Not yet at the state pension age (find out your pension age here)
You should also be covered if you’re on a short term contract, an agency pays your wages, or if you’re currently away on maternity, adoption or carer’s leave.
Within 6 weeks of your staging date, you will be given a document from your employer, which will include:
Your personal details, e.g., name, address
Which pension you have been enrolled into
The amount you will pay
The amount your employer will pay
Information on opting out of the pension
A declaration of compliance
The declaration of compliance lets you know your employer has correctly followed their employer duties in setting up your pension.
If you have not received one, ask your employer or contact The Pensions Regulator.
What if you do not qualify?
There are two main reasons why you may not qualify for auto-enrolment:
You do not meet the eligibility criteria
You already pay into a workplace pension which meets the government's standards
You can still ask your employer to let you:
Opt into the auto-enrolment pension scheme. Even if you are not eligible for automatic enrolment, you may still be able to join. Your employer will also have to make a contribution if you are added so it is definitely worth asking.
Pay into a separate pension scheme if you cannot opt in. Your employer does not need to make any contributions if you do this.
Alternatively, you could speak to an independent financial advisor and set up a private pension on your own.
Do you have to auto-enrol?
No, while you will be automatically enrolled if you are eligible, you can choose to cancel your enrolment after the staging date. This is known as 'opting out'.
To opt out, you must complete an 'opt-out form' and give it back to your employer within one calendar month from when your membership was created (the opt-out period). Your employer will give you a full refund of any contributions.
If you opt out after this period you will be ‘ceasing active membership’ and whether or not you receive a refund of contributions will depend upon the pension scheme rules.
Your employer must re-enrol you back into the pension every three years. This is in case your eligibility/financial situation changes and you would benefit from the pension scheme and government contributions at a later date. You will still have the option to opt out every three years.
Can you delay your entry?
Yes, by opting out and enrolling at a later date.
Your employer only needs to accept you onto the workplace pension once in a 12-month period, meaning you can only opt-out and opt back in once a year.
Opting out means you will lose out on any contributions from your employer or the government.
How much do you need to pay in?
The minimum amount you and your employer have to pay into your pension is. in general, 4% from you, 1% tax relief (from the government) and 3% from your employer, making a combined total of 8%.
| Who pays | Until March 2018 | From April 2018 | From April 2019 |
|---|---|---|---|
| You | 0.8% | 2.4% | 4% |
| Employer | 1% | 2% | 3% |
| Government tax relief | 0.2% | 0.6% | 1% |
| Overall contribution | 2% | 5% | 8% |
What are your qualifying earnings?
This is worked out by taking your yearly income before income tax and national insurance have been deducted.
For the 2020/21 tax year this is everything over £6,240 (the qualifying threshold for pensions) and up to £50,270 (the qualifying earnings cap) and includes your salary, as well as any commission, bonuses and overtime. And while there is no obligation for your employer to make contributions on any earnings above the earnings cap, they may choose to.
For example, if your employer pays you £30,000 a year, the figure of £6,240 will be deducted. This means you have £23,760 of qualifying earnings.
However, some employers apply the pension contribution to the whole of your earnings, not just your qualifying earnings.
What type of pension will you get?
Your employer will choose a pension scheme, but they will give you all the details about it. There are two popular types of pension schemes:
Defined contribution pension schemes (most common) - Also known as money purchase schemes, this type of pension will invest your contributions, which you can usually review throughout the term of the scheme. Your retirement pay-out will be worked out based on how much you and your employer have contributed and how the scheme has performed throughout its term.
Defined benefit pension schemes - This type of pension is based on your earnings over the entire length of your employment. Two examples of this type of pension are the final salary schemes and career average revalued earnings (CARE) schemes.
Visit the gov.uk website for more information on pension schemes
Does your employer have to auto-enrol you?
Yes, if you are an eligible employee, your employer is required by law to enrol you onto their workplace pension, unless you are:
A member of the armed forces
The only person in a company (director)
If you are not on the exception list above and your employer refuses to enrol you into a pension, contact The Pensions Regulator for help. You can find out more about pensions at the Government’s MoneyHelper and Pension Wise websites.
FAQs
Can you transfer other pensions into your workplace pension?
Not always, contact your employer or the pension scheme to find out your options.
What if you have more than one job?
Each employer will check if they need to automatically enrol you, this means you could get enrolled into more than one pension scheme.
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