Workplace Pensions and Auto-Enrolment Explained
Your employer must usually enrol you in a workplace pension through auto-enrolment if you are 22 to State Pension age, earn at least £10,000 a year and ordinarily work in the UK. The legal minimum total contribution is 8% of qualifying earnings, with at least 3% from your employer. Tax relief can boost what ends up in your pot, so the figures on your payslip are not always the full story.
Who is enrolled automatically
Auto-enrolment applies when you are classed as a worker. According to GOV.UK, your employer must enrol you if you are aged 22 up to State Pension age, earn at least £10,000 a year, and ordinarily work in the UK.
Your employer must write to you with the enrolment date, the type of scheme, who runs it, how much you and they will pay, how to leave the scheme, and how tax relief works. They can delay enrolment by up to three months in some cases, but they cannot encourage or force you to opt out.
Your employer does not have to contribute if you earn £520 a month, £120 a week or £480 over four weeks or less.
You can check your State Pension forecast to see how it sits alongside a workplace pension.
How much goes in
Contributions are usually calculated on qualifying earnings between £6,240 and £50,270 a year before tax. That band can include salary, bonuses, commission, overtime and statutory pay, not just basic wages.
The minimum from April 2019 is 3% from your employer and 8% in total. Your employer may pay more than 3%, which can reduce what you need to pay while still meeting the rules.
GOV.UK gives a simple example: you put in £40, your employer £30, and tax relief £10, making £80 in the pot. Tax relief means some of the money going in may come from HMRC rather than your take-home pay, depending on how the scheme is set up.
Tax relief and payslips
There are two types of arrangement, net pay and relief at source, and the line on your payslip looks different for each. Check with your employer or pension provider which one your scheme uses.
With relief at source, you may be able to claim money back if you pay higher or additional rate Income Tax.
Saving for a first home through a Lifetime ISA is a different product with its own limits and bonuses.
Opting out
You can opt out of the workplace pension if you do not want to stay in, but your employer must not pressure you. Opt out through the pension provider using the contact details in your enrolment letter.
If you opt out within one month of being added to the scheme, you should receive a refund of what you paid in. If you opt out later, the money usually stays invested in the pension until you can take it under the scheme’s retirement rules.
Re-enrolment
Employers must put you back into a qualifying scheme through re-enrolment about every three years, or sooner in some cases, if you still meet the age and earnings tests. If you opted out earlier, re-enrolment may add you again unless you opt out once more.
If you change jobs, a new employer runs its own auto-enrolment process. Your old pension still belongs to you, and if you stop paying in, the money remains invested. The Pension Tracing Service can help find contact details for schemes from earlier employers.
More guides are in the pensions hub.
Annual allowance
You may have to pay a tax charge if your total pension savings go above the annual allowance of £60,000. If you start taking your pension pot, the allowance can drop to as low as £10,000.
Frequently asked questions
Who must be automatically enrolled?
GOV.UK says your employer must enrol you if you are classed as a worker, aged 22 to State Pension age, earn at least £10,000 a year, and ordinarily work in the UK.
What is the minimum contribution rate?
Since April 2019 the minimum is 8% of qualifying earnings, with at least 3% from your employer. Your employer may pay more so you pay less.
What earnings count for pension contributions?
Contributions are usually based on earnings between £6,240 and £50,270 a year before tax, including salary, bonuses, commission, overtime and statutory pay.
How long do I have to opt out with a refund?
If you opt out within one month of being added to the scheme, you should get a refund of what you paid in. After that, payments usually stay in the pension pot.
What is the pensions annual allowance?
The annual allowance is £60,000. It can fall to as low as £10,000 once you start taking money from your pension pot.
Sources
Disclaimer: This article is general information and not personal financial, tax or legal advice. Check your own situation with HMRC, GOV.UK or a regulated adviser.