From October 1st 2012, employers started enrolling their workers into a workplace pension. It means you can join the pension scheme without doing a thing. Here’s a beginner’s guide to automatic enrolment.
A beginner’s guide to automatic enrolment
The benefit of automatic enrolment is that you don’t have to sign up your employer’s pension scheme, instead you’re put into it and you have to leave if you don’t want to stay in. Here’s what automatic enrolment involves, in a nutshell:
- Your employer will have to enrol you into a workplace pension scheme. Not all employees are automatically enrolled (see bullet points below), but most are.
- Your employer will have to pay into it on your behalf. The government sets out the amount that employers have to pay – it’s based on a percentage of your salary.
- No one will be forced to stay in the pension scheme if they don’t want to. Anyone who’s automatically enrolled will be free to opt out of the scheme within a time limit. If you opt out, no money is taken. If you leave the pension later on, you can’t get back any money you’ve already had deducted but you won’t have to pay any more. Money you’ve already paid into the pension, and any money your employer has paid, will be ring fenced.
Who will be automatically enrolled?
Not everyone will be automatically enrolled into their workplace pension scheme.
You will be automatically enrolled if you:
1. are aged 22 or over
2. are not already in a workplace pension scheme that meets certain criteria
3. are under state pension age
4. earn more than a certain amount a year from each job. In the tax year 2019-20 the figure is £10,000. It is likely to change in the future.
5. work or usually work in the UK
SAVVY TIP: If you’re aged under 22 or over state pension age but under 75, or earn less than £10,000, you can ask to join your employer’s pension scheme, although you won’t be automatically enrolled. If you earn between £6,136 (in tax year 2019-20) and £10,000, your employer has to contribute as well.
When will I be automatically enrolled into a pension scheme?
If you start a new job, your employer doesn’t have to automatically enrol you for three months.
- Employers can also ‘postpone’ introducing automatic enrolment for up to three months from the date they are supposed to start auto enrolling.
SAVVY TIP: If they choose to ‘postpone’, employers must write to you if you’re affected.
Can I leave the pension scheme?
You can choose to opt out of your workplace pension scheme at any time if you want to.
- If you opt out within the first month: In this case, money you’ve paid into your pension will be refunded to you. You’ll be opted back into your workplace pension scheme every three years as a prompt to encourage you to save for a pension, although you can opt back out again.
SAVVY TIP: If you change your mind and decide you want to rejoin the scheme, you can do so once in every 12 month period. But if you change your mind and opt out, and want to rejoin a second time within a 12 month period, your employer doesn’t have to accept you into the pension scheme (although they can if they want to).
- If you opt out after the first month: You won’t get a refund of the money you’ve already paid in. Instead it will stay in your pension until you either move it elsewhere or take money out when you’ve retired.
How much will I have to pay?
When the scheme is fully up and running, in April 2019, you will have to pay 4% of your salary into your workplace pension. In broad terms, it will work like this:
- You will pay in 4% of your salary.
- Your employer will pay in a minimum of 3% of your salary.
SAVVY TIP: Your employer won’t have to pay in at least 3% of your entire salary, but will have to pay in 3% of your salary between an upper and lower threshold (currently between around £6,136 and £50,000 in tax year 2019-20). Your employer can pay in more than 3% of this if they want to.
- The government will pay in 1% of your salary (this is in the form of ‘tax relief’, which is essentially a contribution from the government on money you put aside in a pension). I’ve written a guide to tax relief and how it works, which explains the idea behind it.
However, these contribution levels are being phased in.
- When you’re first enrolled, you’ll only have to pay in 0.8%, your employer will pay in 1% and you’ll get 0.2% tax relief. This level lasted until April 5th 2018.
- The intermediate contribution level will be 2.4% from you, 2% from your employer, with tax relief making up 0.6%. This level lasts from April 6th 2018 until April 5th 2019.
SAVVY TIP: All employees and employers will pay the full contribution rate of 4% and 3% respectively from April 2019.
There’s also information about automatic enrolment on the Gov.uk website.
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