Auto enrolment pensions: the basics
Since October 2012, employers have had enrol their staff into workplace pension schemes as part of a government initiative to get people to save more for retirement.
It is now compulsory for employers to automatically enrol their eligible workers into a pension scheme.
The employer must also pay money into the scheme.
When does auto-enrolment apply?
You will be automatically enrolled into your work's pension scheme if you meet the following criteria:
- You aren't already in a qualifying workplace scheme;
- You are aged at least 22;
- You are below state pension age;
- You earn more than £10,000 a year in 2018/19;
- You work in the UK.
Do I need to join the auto-enrolment pension scheme?
You don’t have to, but opting out isn’t usually a sensible decision as you’ll lose out on employer contributions.
You can opt out at any time you want to. If you opt out within the first month, your payments will be refunded in full.
If you opt out after the first month, any payments you've made will stay in your pension pot.
Opting out isn't final – you can re-join at a later date. Also, employers will be required to re-enrol you every three years, so you can reconsider your decision.
Auto-enrolment: how much do I contribute?
There are minimum contributions that you and your employer must pay. Minimum contributions are being gradually increased over time.
Both you and your employer can choose to contribute greater amounts to the pension if you wish.
If your employer contributes more than its required minimum amount - but less than the total minimum amount - you only need to make up the shortfall between the total minimum and the employer contribution.
Auto enrolment contribution rates 2018
Our table highlights what the different parties must contribute to auto enrolment pensions.
|Period||Employer minimum contribution||Staff contribution||Total minimum contribution|
|Until 5 April 2018||1%||1%||2%|
|6 April 2018-5 April 2019||2%||3%||5%|
|6 April 2019 onwards||3%||5%||8%|
Auto enrolment: FAQ
Some key questions about pension auto-enrolment are answered below:
How do I opt out of pensions auto-enrolment?
Opting out involves getting an opt-out form from your pension provider or doing so via an online account.
You can get contact details of the pension company from your employer.
If the form is completed and returned to your employer within one month of being automatically enrolled, any money you have paid into the pension will be refunded, otherwise the money will be held into the scheme until you can access it.
How does the auto-enrolment minimum contribution work?
Your minimum contribution applies to anything you earn over £6,032 up to a limit of £46,350 (in the tax year 2018/19). This includes overtime and bonus payments.
If you were earning £25,000 a year, your contribution would be a percentage of £18,968 (the difference between £6,032 and £25,000).
It’s down to your employer to confirm how much of your earnings you’ll need to contribute.
What if I am in a workplace pension scheme already?
If you are an existing member of a workplace pension scheme and it meets certain minimum standards (ie it is a ‘qualifying scheme’), you will not be affected by automatic enrolment.
However, if contribution levels fall below the minimum contributions for an automatic enrolment scheme, you and/or your employer may need to start or increase contributions.
What is a qualifying workplace pension scheme?
Your employer’s pension scheme must meet some minimum criteria before an employer can automatically enrol workers.
Schemes can be UK-based or a non-UK scheme, they must be tax registered and need to meet minimum requirements that vary according to the type of pension scheme.
Qualifying schemes can be either defined benefit or defined contribution pension schemes.
Auto-enrolment: what if I have more than one job?
For people with more than one job, each job is treated separately for automatic enrolment purposes. You can still opt out of individual schemes if you want.
Each of your employers will check whether you’re eligible to join their pension scheme. If you are, then you’ll be automatically enrolled in that employer’s workplace pension scheme.
What is Nest auto-enrolment?
Nest stands for National Employment Savings Trust. It is a low-cost workplace pension scheme that has an obligation to accept all employers that want to use it.
Nest was set up by the government to make the process of auto-enrolment easier for employers.
What is People’s Pension?
An alternative to Nest is People’s Pension which is a multi-employer, defined contribution pension scheme which has master trust status.
It may be that your employer uses People’s Pension as their workplace pension scheme provider. People’s Pension is operated by not-for profit organisation B&CE.