Ruth Jackson-Kirby
Auto-enrolment is a government initiative to get people saving for retirement. The idea is that by taking away the effort required to decide to join our workplace pension and simply make it automatic, more of us will be better off when we retire.
What is auto-enrolment?
Every employer is now required to provide a workplace pension, which all qualifying employees are automatically enrolled onto. This means when you join a company – provided you meet the qualifying criteria – you will be signed up to the workplace pension and some of your salary will be automatically deducted and paid into your pension each month.
You can choose to opt out of your workplace pension, but the government hopes that by making it the default option more of us will save for retirement and not be solely reliant on the state pension.
Who qualifies for auto-enrolment?
To qualify for auto-enrolment you have to meet certain criteria:
- You must be aged between 22 and state pension age
- You must earn more than £10,000 from that job
- You must work in the UK
If you earn less than £10,000 but more than £6,240 you can ask to join your workplace pension and your employer must allow you.
What is the minimum contribution?
Under auto-enrolment rules there is a minimum amount of what you earn that you and your employer have to pay into your workplace pension. The minimum amount you have to put in is 5%, which includes tax relief. Your employer must make contributions equivalent to at least 3%.
It is important to note that minimum contribution amounts only apply to ‘qualifying earnings’. This is any pre-tax employment income of between £6,240 and £50,270. Some employers, however, may base contributions on your whole salary. If you aren’t sure what you are getting, ask your employer to clarify.
Your contribution is then further boosted by tax relief, which is effectively a rebate of the tax that you paid on that income. So, if you earn £30,000 a year, then £99 a month will automatically be deducted from your salary each month and paid into your workplace pension. However, because this includes tax relief of £19.80, it will only cost you £79.20. Your employer will then add a minimum £59.40, meaning a total of £158.40 will be paid into your workplace pension each month.
But that is just the minimum you have to pay in. You can choose to pay more into your workplace pension, and your employer may contribute more than 3% too. If you can afford to, it could make sense to increase your contribution – paying the bare minimum may not be enough to guarantee a comfortable retirement. If your employer will match your contributions, that’s a great boost too.
How do I know if I’ve been auto-enrolled?
You can find out if your employer has added you to your workplace pension by checking your payslip. You should see deductions for your pension contributions.
How to opt out of auto-enrolment
You can decide to leave your workplace pension scheme whenever you like. This is known as ‘opting out’.
If you opt out within one month of being auto-enrolled, any contributions you made to the pension must be refunded back to you. In cases where it has been more than a month, you cannot get back the money that has already been paid into your pension. You will only be able to access it once you turn 55 (rising to 57 in 2028).
Think hard before opting out of your workplace pension — it is a great way to save for retirement, and you’ll be missing out on free cash from both your employer and the government if you decide not to participate.
If you still want to opt out, then speak to your employer for the specifics on how to leave your workplace pension scheme. You will have to complete a form that authorises your decision. Your employer is not allowed to encourage or induce you to opt out.
Why opt out of auto-enrolment?
There are times when it may make sense to opt out. One example might be if you are struggling with debt or losing income due to a serious illness.
If you do opt out, you can opt back in at any time. However, your employer is legally obliged to re-enrol you after a set period (usually three years), and if you still don’t want to be in the scheme you will be free to opt out again.
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