A third of people who’ve been auto-enrolled into a workplace pension are unaware that it’s happened, new research has revealed.
While 91% of eligible employees are saving into such a pension scheme, only 63% are aware that they’ve been automatically enrolled, according to the latest ONS Wealth and Assets Survey.
We explain how auto-enrolment works and how it could help you save for retirement.
What is pension auto-enrolment?
Introduced in 2012, auto-enrolment makes it compulsory for employers to automatically enrol eligible employees into a workplace pension.
A workplace pension (or company pension) is one that’s arranged by your employer, who pays a percentage of your salary into a pension scheme each payday.
You should be automatically enrolled into a pension scheme if you:
- aren’t already in a qualifying workplace pension scheme
- are at least 22 years old
- are below state pension age
- will earn more than £10,000 in the year 2018-19
- work in the UK.
Find out more: how pensions work
Auto-enrolment contribution rates 2018
The current minimum auto-enrolment rate is 5%, which is usually made up of a 2% contribution from employers and 3% contribution from staff.
It is possible for you and your employer to pay more than the minimum contribution into your pension pot.
If your employer contributes more than the required minimum amount but less than the total minimum, you will only have to make up the shortfall, rather than paying in the minimum contribution for staff.
For example, if your employer makes a contribution of 3.5% you will only need to pay in 1.5% in order to reach the current 5% total minimum contribution to your pension.
The table below shows the auto-enrolment minimum contribution rates for 2018 and onwards.
|Period||Employer minimum contribution||Staff contribution||Total minimum contribution|
|Until 5 April 2018||1%||1%||2%|
|6 April 2018 –
5 April 2019
|6 April 2019 onwards||3%||5%||8%|
- Find out more: auto-enrolment: how it works
Opting out of a workplace pension
It is possible to opt out of your workplace pension scheme whenever you want.
Usually, doing so within the first month of being auto-enrolled means that you’ll get back any contributions that you’ve made.
If you opt out after the first month of being in the scheme, any payments you’ve made will stay in your pension pot until you turn 55, when you can buy an annuity, take a lump sum or start taking out money through income drawdown.
You can choose to opt back in to your company’s pension scheme at a later date. Employers are also obliged to re-enrol you every three years so that you can reconsider your decision.
Opting out of your company’s pension scheme may seem tempting in the short term, especially if retirement is a long way off, but you’ll be missing out on more money than you’d keep by opting out.
This is because when you save into a pension, the government gives you a reward to help boost your pension pot.
Pension tax relief is paid on your contributions at the highest rate of income tax you pay.
This means that:
- basic-rate taxpayers get 20% pension tax relief
- higher-rate taxpayers can claim 40% pension tax relief
- additional-rate taxpayers can claim 45% tax relief.
Check out the short video below for more details on how pension tax relief can help your retirement income.
Can I just rely on my state pension for retirement?
Workers eligible for auto-enrolment will be in line to get the new state pension, which was introduced on 6 April 2016.
The 2018-19 ‘full level’ of new state pension is £164.35 a week (£8,546.20 per year).
While it can be a great bonus on top of a separate pot of retirement savings, your state pension alone may not be enough to cover the lifestyle you’ll want.
- Find out more: how much will you need to retire?
How is the state pension calculated?
Your state pension entitlement is based on your National Insurance contributions.
If you reach state pension age after 6 April 2016, you’ll need at least 35 years of National Insurance contributions to get the full state pension, and at least 10 years to get any state pension at all.
National Insurance contributions are made while you’re in employment, but if you find yourself out of work due to unemployment, illness or caring for a child, you can maintain your record by applying for National Insurance credits.
- Find out more: National Insurance and the state pension
How to save for retirement
Pensions are essentially long-term savings plans to make sure you have enough money to maintain the lifestyle you’d like when you retire.
It’s important to start your retirement planning as early as possible to give yourself enough time to save up what you’ll need in the future.
Check out our pensions and retirement guides to help work out how much you’ll need to save in a pension each month.