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Retirement

Workplace Pensions: Everything you need to know about Automatic Enrolment

Time to read: 6 minutes

People are living longer and saving less, so it’s important that everyone gets a helping hand in planning for a comfortable retirement.

The Government’s aim is for more people to have another income, on top of the State Pension, when they come to retire. This is where Automatic Enrolment comes into play.

With Workplace Pensions, both you and your employer put money into your pot, so you build up more savings over time.

 

What is Automatic Enrolment?

Automatic Enrolment is when an employee who meets certain requirements is made a member of a Workplace Pension scheme without needing to ask to be part of it.

As a result, more people are able to build up retirement savings that they can use to provide them with an income from age 55 onwards. This will change to 57 in 2028.

Prior to Automatic Enrolment, it was up to workers to decide whether they wanted to join their employer’s pension scheme, however, Auto Enrolment came along and was phased in from 2012.

 

Automatic Enrolment: A brief history.

Automatic Enrolment was introduced following the Pensions Act 2008 and was intended to address declining Workplace Pension provision in the early 2000s.

The scheme stipulates that every UK employer must register eligible employees (aged between 22 and state pension age and earning over £10,000 per year) into a Workplace Pension.

Automatic Enrolment was phased in between 2012 and 2018, starting with the largest employers.

Minimum contribution rates were also phased-in, reaching their full amount, 8% of earnings, in April 2019. Employers contribute a minimum 3% and employees 5%, part of which includes tax relief. Since 2018, all UK employers have had to provide a Workplace Pension to new employees.

 

Do you need to be automatically enrolled into a pension? 

By law, every employer with at least one member of staff needs to provide Automatic Enrolment for those who are eligible for a Workplace Pension scheme and contribute towards it.

This helps lots more people save for retirement. Whether you work full-time or part-time, your employer will have to enrol you in a Workplace Pension scheme if you meet these Automatic Enrolment rules:

  • You work in the UK
  • You are at least 22 years old, but under State Pension age
  • You earn more than £10,000 a year for the tax year 2023/24

 

Enrolling beyond minimum contribution rates.

Minimum contribution levels are a key feature of Automatic Enrolment. These contribution levels effectively serve as a ‘default’ option for employers and employees when setting up pension contributions.

You and your employer may pay in more than the minimums, but you cannot remain in the scheme and pay in less.

The current minimum contributions are:

  1. Minimum employer contribution – 3% of your qualifying earnings.
  2. Minimum total contribution – 8% of your qualifying earnings.

As part of your Automatic Enrolment, your employer can choose to pay the minimum employer contribution, or a greater amount. If they choose the minimum employer contribution, you must pay in at least enough to reach the minimum total contribution.

 

Automatic Enrolment: Our most asked questions.

What if I work for more than one employer?

If you meet the criteria for an eligible jobholder with each employer, they should ensure your automatic enrolment within their Workplace Pension.

If you meet the criteria for a non-eligible jobholder or entitled worker with each employer, you’ll have the right to join a Workplace Pension through each of your employers.

You may also find that you are in different categories for each employer, so you may be automatically enrolled by one employer and have the right to join another employer’s Workplace Pension. You could end up being in two (or more) different Workplace Pensions, one for each employer.

 

What if I leave my job to become self-employed or stop working?

You should think about what income you’ll have to live on in later life. Your employer will stop paying into your Workplace Pension, but you will be able to continue contributing, if you want. If you have a Workplace Pension with True Potential, payments can be made through your online account or app by impulseSave® or Direct Debit.

Alternatively, you could consider a Personal Pension to ensure you are saving effectively towards your retirement.

 

How does tax relief affect my Workplace Pension?

The Government takes tax off your income – you can see this on your payslip. Tax relief means some of your money that would have gone to the Government as tax now goes into your Pension instead. There are two ways in which tax relief can be added to your pension pot.

1. Pension relief at source.

Under this arrangement, if you’re a Basic Rate taxpayer, you don’t have to do anything to get the tax relief paid into your pension. It will happen automatically.

If you’re a Higher or Additional Rate taxpayer, to get full tax relief, you need to claim back some of your tax from the Government. This is because tax relief is added to your Pension at the basic rate of 20%.

To get all the tax relief that is due to you, you need to claim back the difference on your annual tax return, or alternatively, if you are a Higher Rate taxpayer you can contact HMRC.

2. Salary sacrifice.

Under this arrangement, you agree to sacrifice or give up part of your gross salary in order for your employer to pay this as a Pension contribution on your behalf. As such, you will receive tax and National Insurance savings, along with your employer.

This, therefore, results in an increase in the value of the overall pay package you receive. As such, you are not taxed on the element of pay you sacrifice to make your Pension contribution and so will receive tax relief at your highest Income Tax rate.

Your employer can tell you which arrangement out of the above two options they use. More information on how tax relief works can be found at: www.gov.uk/income-tax-reliefs

 

Will the amounts paid into my Pension change?

Yes, the amounts will vary depending on your earnings. If your earnings are variable and change each month, your contributions will vary.

The Government’s minimum contribution limits may increase in the future and therefore, have an impact on the amounts paid by both you and your employer.

 

What if I move jobs?

If you’re moving jobs, you’ll automatically be enrolled into a new Workplace Pension if you meet the criteria for an eligible jobholder. Under government guidelines, all firms have to provide you with a Workplace Pension.

If you start a new Pension (either ‘Workplace’ or ‘Personal’), you may be able to combine your old Pension with your new one. Your new Pension scheme provider will be able to tell you if this is possible and, if so, how to go about doing it.

Combining your pensions might give you greater freedom and choice with your retirement savings. However, it is worth considering that any previous workplace schemes you hold may offer valuable benefits that would be costly to give up if you transfer your money out. Your current providers may also charge exit fees.

 

We’re here to help.

We’re always here to help you do more with your money. Professional expertise will help you to decide upon a course of action that is best suited to your unique circumstances. If you want help with your pension, call our Relationship Management Team on 0191 500 9164.

With investing, your capital is at risk. Investments can fluctuate in value, and you may get back less than you invest. Past performance is not a guide to future performance. Tax is subject to an individual’s personal circumstances, and tax rules can change at any time. This blog is not personal financial advice.

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