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What is auto enrolment?
It is when you are put into a workplace pension automatically.
Automatic enrolment was introduced in October 2012 and requires employers to provide a workplace pension for their eligible employees.
The auto enrolment process has already started for larger companies first, followed by smaller companies with the aim of enrolling all eligible employees by April, 2019.
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 will also make a contribution on your behalf.
The government will also contribute a percentage towards your pension as a tax relief.
The date your employer starts auto enrolment is called the staging date.
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
- Not paying into a workplace pension already
- Not yet at the state pension age (find out your pension age)
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 do not get one, make sure you 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.
- Pay into a separate pension scheme if you cannot opt in. Your employer does not need to make any contributions if you do this.
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.
The earlier you decide to opt out, the better the chance of getting the money you paid in back, for example:
- Opt out within first month: You will get all of your contributions back in full.
- Opt out after first month: It is unlikely you will get your money back until you reach your retirement age, however this depends on the pension scheme your employer enrols you onto.
Your employer must put you back into the pension every three years. This is in case your 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.
How much do you need to pay in?
The amount you and your employer have to pay into your pension will gradually increase over the next few years.
The maximum combined contribution will be 8% from April 2019, here is how your payments will be calculated, based on your qualifying earnings:
|Who pays||Until March 2018||From April 2018||From April 2019|
|Government tax relief||0.2%||0.6%||1%|
What are your qualifying earnings?
This is worked out by taking your yearly income and deducting the qualifying threshold for pensions, which is £5,876 in the 2017/18 tax year.
For example, if your employer pays you £25,000 a year, the figure of £5,876 will be deducted. This means you have £19,124 of qualifying earnings.
The following table shows how much will be contributed to towards your pension:
|Who pays||Until March 2018||From April 2018||From April 2019|
|Government tax relief||£38.35||£115.06||£191.76|
Figures in table represent annual deductions based on earnings remaining the same for each year.
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 scheme:
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.
Defined contribution pension schemes - 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 performs throughout the pension schemes term.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