What is pension auto-enrolment?

Pension auto-enrolment is a government scheme that requires employers to automatically add their employees into a workplace pension scheme. It also requires the employer to make contributions if the employee stays opted in.

This means you start saving in a pension without having to fill out any paperwork and get a boost from your employer, which helps a lot of people get started on their retirement savings much earlier in their career.

How does auto-enrolment work?

If you’re between 22 and state pension age and make over £10,000 each year, you’ll be automatically enrolled into a workplace pension.

The rules say that you and your employer must pay in a percentage of your earnings to the scheme. The total minimum contribution is 8% of your earnings, including at least 3% that must be put forward by your employer. These contributions will go into a default pension fund where they’re invested for you, if you don’t make any other investment choice for your pension.

When does pension auto-enrolment start?

Contributions to your pension will generally start three months after you’ve been employed, but you can also opt for the contributions to begin right away.

You can choose to opt out of your pension, but if you do this, your workplace will not be required to pay in either. You also won’t get tax breaks on your own contributions.

How can I check that I’ve been auto-enrolled?

You can check if you’ve been auto-enrolled by looking for communication from your employer, who is required to provide confirmation and details about your plan. You’ll also likely have correspondence from the pension provider.

If you aren’t able to locate these documents, you can also look at your payslips to see if pension contributions are being deducted each month.

How much do I have to pay into a workplace pension?

The amount you and your employer will pay depends on the scheme rules.

If we assume you and your employer pay in the legal minimum to participate in auto-enrolment, you’ll need to contribute 5% of your gross salary, and in turn, your employer will contribute 3%. While giving up 5% of your salary might feel hard to stomach, you should also consider that this includes pension tax relief. Tax relief is the percentage of your income that the government would usually take in the form of income tax from your pay, but because you are placing it in a pension, they allow you to contribute tax free.

Depending on how your workplace handles pensions, this relief can happen one of three ways. The difference in these methods is mostly the order in which income tax, pension contributions, and National Insurance payments are taken from your income.

Can I pay in more than the minimum contributions? 

The 5% contribution you make to your pension under auto-enrolment is just a starting point. In fact, many people don’t find this amount sufficient to fund retirement. You can use our pension calculator to get a ballpark figure of how much you would need to contribute towards your retirement.

The maximum yearly pension contribution is the lower of £60,000 or 100% of your UK earnings, for most people. Unused pension contributions can also be carried forward for three years if you were invested in a pension during that period, but extra rules apply. For salaries above £260,000, your allowance starts to be tapered down until it reaches the minimum cap of £10,000 for anyone earning £360,000 or more.

What happens if you change jobs?

If you change jobs, your new workplace will set up a new auto-enrolment pension for you. Your old pension will remain invested, but there just won’t be any more contributions flowing in. If you’d like to hold all your pensions in a single place, you’ll need to combine your pension pots.

While combining your pensions sooner rather than later can help you keep track of investments, there’s no need for panic if you’ve left a pension pot untouched for a long period of time. You can claim and transfer an old pension pot at any point.

Can you opt out of auto-enrolment pension? 

Yes, you have the option to opt out of auto-enrolment pensions. You can do this through your pension provider, but you’ll need to speak to your employer first to understand the procedure for your specific company. If you opt out within a month of being added to the scheme, you can get a refund for those first contributions. 

Note that once you opt out of the scheme, your employer will also no longer be contributing to your pension, and you will not get the government tax relief on your income. So, if a basic rate taxpayer was making £1,200 of contributions to their pension each year through a net pay auto-enrolment system and opted out, they’d only receive £960 of that income in their pocket instead and nothing into their pension. The rest would be taken as income tax. 

Your employer will also need to re-assess and automatically re-enrol you back into the scheme every three years, if you meet the criteria.

If you choose to opt back in, you’ll need to contact your employer. But note that if you opt in, opt out, and then try to opt back in within 12 months, they aren’t required to add you back into the scheme.