What are auto-enrolment pensions?

Auto-enrolment pensions give UK workers access to a workplace pension without the hassle of signing up themselves. It’s an easy way to start building a pension pot for the future. Employees are automatically added to a pension scheme, so there’s no need to take any extra steps.

If you’re curious about how auto-enrolment pensions work and how they benefit you, you’re in the right place. Let’s break it down together.

This guide covers:

• When did automatic enrolment start?
• Do you qualify for auto-enrolment?
• What auto-enrolment means for employees
• Can I opt out of an automatic enrolment pension? (and should I?)

When did automatic enrolment start?

Auto-enrolment pensions were introduced in 2012 to help more people save for retirement. Before then, employees had to decide whether or not to join a pension scheme – many didn’t. Auto-enrolment pensions were then slowly rolled out until 2018 when they were extended to smaller businesses. Participation in workplace pensions has grown from just over half in 2012 to nearly 9 in 10 workers in more recent years.

Do you qualify for auto-enrolment?

Not everyone gets enrolled automatically – here’s what makes you eligible:

• Aged 22 or over but under the State Pension age.
• You work in the UK.
• You earn more than £10,000 a year.

If you meet these criteria, you’re good to go! This system helps more people build up savings for their retirement.

What auto-enrolment means for employees

Auto-enrolment is a shared effort between employees and employers, with both contributing to the pension pot. Let’s explore what this means for you.

How much do I need to contribute?

Auto-enrolment contributions are split in three ways:

• You contribute 5% of your qualifying earnings (but this includes tax relief, so you’re paying a bit less out of pocket).
• Your employer adds at least 3%.
• The government chips in through tax relief.

Altogether, this adds up to a minimum of 8%, giving your pension pot a solid start.

Here’s an example of how pension contributions might work for one year based on the average UK salary (approximately £33,000 as of 2023)

Pension Contribution Breakdown (Auto-Enrolment)

For auto-enrolment, contributions are only calculated on earnings between £6,240** and £50,270 (2023/24 thresholds).

Earnings used for contributions: £33,000 – £6,240 = £26,760

Contributions are based on this £26,760 figure, not the full salary.

Minimum Contribution Rates

• Employee Contribution – 5% of qualifying earnings
  • £26,760 × 5% = £1,338 per year
• With tax relief, this may feel like less (the government tops up a portion).
• Employer Contribution: 3% of qualifying earnings
  • £26,760 × 3% = £803 per year

Total Annual Contribution

£1,338 (employee) + £803 (employer) = £2,141 per year

What this means for you

Monthly breakdown

• Employee – £1,338 ÷ 12 = £111.50 per month
• Employer – £803 ÷ 12 = £66.92 per month
• Total into the pension pot: £178.42 per month

Government help

Part of your 5% contribution comes from tax relief, so the amount you actually pay is less than the full £111.50 per month.

Can I opt out of an automatic enrolment pension? (and should I?)

Yes, you can opt out if you decide it’s not the right fit for you. But keep in mind that opting out means saying no to contributions from your employer and the government.

That’s like leaving free money on the table!

If you opt-out within a month of being enrolled, you’ll get back any contributions you’ve made. And don’t worry – you can always rejoin later if you change your mind.

I can’t afford my 5% contributions, can I reduce them?

Money can be tight, and 5% might feel like a lot. Some pension schemes offer flexibility, so it’s worth speaking to your employer or pension provider to see what changes can be made.

What if my age or income changes?

Life doesn’t stand still, and changes to your age or income can affect your eligibility:

• Turning 22 – If you weren’t automatically enrolled before, you’ll be added to a pension scheme when you hit 22 (as long as you’re earning over £10,000).
• Earning more – If your income increases above £10,000, your employer will enrol you automatically.
• Fluctuating income – If your earnings drop below £10,000, you may no longer qualify for auto-enrolment, but you’ll stay in the scheme unless you choose to leave.
• Entitled workers – If you earn between £6,240 and £10,000, you won’t be automatically enrolled, but you can still join and receive contributions from your employer.

What employers need to know about auto-enrolment#

Employers have a big role in making auto-enrolment work. Here’s a quick look at what’s involved:

Choosing a pension scheme

Employers need to pick a workplace pension scheme that’s right for their team – one that offers a meaningful benefit and helps employees plan for the future.

Check which employees you need to enrol

Not all employees qualify for auto-enrolment. Employers need to check their workforce and enrol any eligible workers while also giving entitled employees the chance to join.

Managing contributions

Once the scheme is up and running, employers handle collecting and investing contributions. This includes maintaining records and making sure employees’ pension pots are growing steadily.

Secure your future with Spencer Churchill Claims Advice

Your retirement should be a time to enjoy the rewards of your hard work, and auto-enrolment pensions are a huge part of securing that future for many working people. If you’re worried you’ve been mis-sold a pension or received advice that has led to financial loss, Spencer Churchill Claims Advice is here to help. Our team will guide you through the claims process and work to recover what’s rightfully yours.

Don’t let poor pension advice affect your golden years – get in touch with the expert financial claims team today to see how we can support you.