Auto enrolment explained

If you have just started a new job you may have found yourself auto-enrolled into their workplace pension scheme. But what exactly is auto enrolment, and what does it mean to you?

Why was auto enrolment introduced?

In 2005, a government report revealed that not enough people were saving into a pension plan, and that many of that many of those that did were unlikely to be saving enough for retirement. Though some companies already enrolled their employees into pension schemes, many did not, forcing employees to make their own pension arrangements if they wished to save for retirement and making it more difficult for them to save easily.

As a result of this, the government introduced enrolment in 2012 as a means of helping people prepare for their retirement and enjoy an income beyond what is provided by the State Pension. Under auto enrolment, UK employers are legally required to set up a workplace pension for their qualifying employees and also contribute a minimum amount to their pension savings.

How do I qualify for auto enrolment?

If you are reading this, you have likely been auto enrolled into a workplace pension scheme at some point in your career. However not everyone is entitled to auto enrolment and there are certain conditions you must meet. To be auto enrolled you must be:

• classed as a ‘worker’ (i.e. have a contract of employment)
• aged between 22 and State Pension age
• earning at least £10,000 per year
• usually (‘ordinarily’) working in the UK

There are a few exceptions but, broadly speaking, if you meet these criteria your employer must auto enrol you into a workplace pensions scheme.

Minimum contributions

Being auto enrolled into a pension scheme doesn’t benefit you if you are not contributing to your pensions savings. This is why there is a minimum contribution level that employees must pay into their pension, and also a minimum level that employers must also contribute.

There are a few different ways this can be calculated, but the minimum basis for calculating auto enrolment pension contributions is known as qualifying earnings. Qualifying earnings are all earnings in a particular bracket that are set by the government each year. Currently, this is set between £6,240 and £50,270.  With qualifying earnings, the minimum auto enrolment contribution to an employee’s pension savings is currently set at 8% of qualifying earnings. Employer’s must contribute at least 3% (though they can contribute more), with employees paying in the remaining 5%.

Can I save more?

These minimum levels exist to ensure that employees are saving into their pensions but there is usually the opportunity for you to save more than the minimum. If you would like to increase the amount you pay into your workplace pension, get in touch with your employer’s HR team or representative.

Some employers may also increase the amount they contribute as you increase your own contributions, so it’s worth seeing if you could be getting more out of your workplace pension by saving a little more each month.