Pension auto enrolment

Pension auto enrolment rules have given a boost to our workplace pension rights. If you’re an employee, you’ll now be automatically enrolled in a workplace pension scheme. Your employer will top up your contributions and you should see your pension pot growing over time.

In this guide, we take a look at the pension auto enrolment rules. We also answer common questions like “do all employees have to be automatically enrolled?” and “can my employers postpone auto enrolment?”

What is pension auto enrolment?

Auto enrolment means that every employer is now required by law to provide a pension scheme for most employees.

If you’re an employee, you’ll be automatically enrolled in a work pension scheme with your employer, as long as you meet the qualifying criteria. Under the rules your employer must contribute at least 3% of your salary into your workplace pension pot and you’ll have to contribute at least 5%. Your employer will take your pension payments from your pay packet before you receive your wages.

Here are the key features of auto-enrolment:

• Employers are required by law to enrol most employees in a workplace pension scheme and contribute at least 3% into their pension pot.
• Employees contribute a minimum of 5% into a workplace pension scheme.
• Auto enrolment applies unless you are under 22 years old, earn less than £10,000, work outside the UK or have a suitable existing workplace scheme.
• If you earn between £6,240 and £10,000 and you ask your employer to enrol you in a pension scheme, they must do so.
• Pension auto enrolment rules still apply if you’re employed part-time, on a zero hours contract, on a temporary contract or on maternity leave.
• You can choose to opt out of auto enrolment.

When did pension automatic enrolment start?

Automatic enrolment was introduced gradually from 2012 onwards. At first, the rules applied only to the largest employers, but they were gradually extended to medium and smaller employers. Now all employers, even those with only 1 employee, have to auto enrol their employees in a workplace pension scheme.

Who will be automatically enrolled?

All employees will be auto enrolled in a workplace pension scheme, as long as they meet the following requirements:

• Work in the UK (including seafarers who normally live in the UK)
• Aren’t already part of a suitable workplace pension scheme
• Between 22 years old and the state pension age
• Earn more than £10,000 per year

Who qualifies for pension auto enrolment?

In order to qualify for pension auto enrolment you have to meet certain criteria:

• You’re between 22 years old and the state pension age
• You earn more than £10,000 from your job
• You work in the UK
• You’re not part of another suitable workplace pension scheme

You will still qualify for auto enrolment if you work part-time, an agency pays your wages or you’re on maternity leave.
If you earn less than £10,000 but more than £6,240 you won’t be automatically enrolled but you can ask to join your workplace pension and your employer must enrol you.

What is the minimum contribution?

Employers must make minimum pension contributions of 3% of an employee’s qualifying earnings into the pension scheme. Qualifying earnings are all earnings between £6,240 and £50,270. For example, if Sasha earns £20,000 her employer must contribute at least 3% of £13,760 (£20,000 minus £6,240) into her workplace pension.

Some employers choose to make pension contributions on your whole salary or to contribute more than 3%. Speak to your employer to find out the rules of your workplace pension scheme.

Employees must contribute at least 5% of their qualifying earnings (earnings between £6,240 and £50,270) into a workplace pension scheme unless they choose to opt out. For example, Sasha, who earns £20,000, needs to contribute at least £688 per year into her pension scheme (5% of her qualifying earnings of £13,760).

How do I know if I’ve been auto enrolled?

You can find out if you’ve been auto enrolled by checking your payslip. If you’re paying into a workplace pension you will see deductions on your payslip.

How to opt out of pension auto enrolment

You can decide to opt out of your workplace pension scheme if you don’t want to pay into it. If you opt out within 1 month of joining the scheme, you’ll receive back any contributions. If you’ve paid in contributions for more than 1 month, you won’t be able to get your payments back. You’ll only be able to access your pension once you turn 55 (57 from 2028).

If you can afford to, it usually makes sense to stay in your workplace pension rather than opting out. That’s because it’s important to save for retirement. By staying in your workplace pension, you’ll also get free contributions from your employer and the government on top of your contributions.

If you decide to opt out, you’ll need to speak to your employer and complete a form that authorises your decision. Your employer is not allowed to encourage or force you to opt out.

Why opt out?

Although paying into a workplace pension is a good idea for most people, for some employees it may make sense to opt out.

You might decide to opt out if you’re struggling financially. For example, you could decide to opt out while you concentrate on repaying debt or try to cope with a reduced income due to an illness.

If you opt out you’re allowed to opt back in at any time. Your employer will automatically re-enrol you after a certain period (usually 3 years). If you still don’t want to pay into the scheme, you’ll have to opt out again.

Will I get tax relief on my contributions?

Most people get tax relief of 20% on their pension contributions. This makes paying into a workplace pension a good deal because you’ll receive free employer’s contributions and your own payments will be boosted by tax relief.

For example, Lilli pays £100 per month into her pension but it only costs her £80 per month. That’s because she would have paid tax of £20 (20% basic rate) on her earnings of £100 and received £80. Instead she contributes the whole £100 into her pension. She also receives £60 pension contributions per month from her employer. This means it only costs her £80 to pay a total of £160 per month into her pension.

Find out more about tax relief on pensions in our guide on pensions and tax.

What happens when my earnings or my age changes?

Employers must monitor their employees’ age and earnings each time they pay staff. This means you should be automatically enrolled if your circumstances change and you become entitled to join the scheme.

If you start earning more than £10,000 or you have your 22nd birthday while in employment, your employer should automatically enrol you in its pension scheme.

I can’t afford my 5% contributions – can I reduce them?

Some employers may allow you to contribute to their workplace pension at a lower rate than 5%. However, it will not meet the auto enrolment rules if the total contributions into your pension scheme are less than 8% of your qualifying salary.

If your employer contributes more than 3% into your pension scheme, you may be able to contribute less than 5% and still meet the auto enrolment rules. However, if the total contributions drop below 8% you will trigger the re-enrolment rules. This means your employer must automatically re-enrol you in 3 years’ time.

What if my employer doesn’t comply with the rules?

If your employer doesn’t comply with the rules it may face action and fines. Speak to your employer if you haven’t joined a workplace pension and you think you should have been auto enrolled.

If you still have concerns then you can speak to the pensions regulator whistleblowing service. It can investigate on your behalf and make sure your employer pays any missing contributions.

Your employer will need to backdate contributions to the day you were eligible to join the scheme. You will also need to pay any missing contributions into your scheme.

I am on a zero-hours contract. How will I be treated?

Employees on a zero-hours contract have the same auto enrolment rights as permanent employees.

Can my employer postpone pension auto enrolment?

Employers can postpone your pension auto enrolment for up to 3 months after you join or become eligible for auto enrolment. If they decide to postpone your enrolment then they must write to you telling you they have delayed auto enrolment.

If you write and ask to join the pension scheme during the postponement period then your employer must enrol you immediately.

Bottom line

The pension auto enrolment rules make pension saving easy and automatic for employees, and have encouraged more of us to save for retirement.

The rules mean you’ll be automatically enrolled in a pension scheme by your employer rather than having to decide to join. Your pension pot can tick along, building up over the years. It’s one less thing to worry about when it comes to saving for the future.

It means that by the time we come to retire, most of us should have built up a reasonable sized pension pot to supplement the state pension.

Frequently asked questions

• Will you be automatically enrolled into a workplace pension?

  You will be automatically enrolled into a workplace pension as long as you are over 22 years old, working in the UK, earning over £10,000 and don’t have a suitable pre-existing workplace pension.

• Do I need to set up an auto enrolment scheme?

  All employers need to set up an auto enrolment scheme, even if they have only 1 employee.

• How soon do I have to auto enrol a new employee?

  You need to auto enrol a new employee straight away, as long as they meet the qualifying criteria.

  You are allowed to postpone enrolling employees for up to 3 months, but you will need to write individually to employees within 6 weeks to explain that you are postponing their auto enrolment.

• Who is exempt from auto enrolment?

  People who work for a business but are not officially employed are exempt from auto enrolment. Here are some examples:

  • Self-employed contractors
  • Directors
  • Partners of an LLP

• Do all employees have to be auto enrolled?

  All employees have to be auto enrolled if they meet the qualifying criteria. That means they earn over £10,000, work in the UK, are over 22 years old and don’t have a pre-existing suitable workplace pension.

• What is the qualifying earnings for pension auto enrolment?

  Qualifying earnings for pension auto enrolment are earnings between £6,240 and £50,270. For example, if Rhys earns £25,000 his qualifying earnings would be £18,760 (£25,000 minus £6,240).

  Employers and employees need to contribute a minimum pension contribution based on these qualifying earnings. For example, Rhys would need to contribute £928 per year (5% of £18,760) into his workplace pension.