What are Auto Enrolment thresholds?

Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.

What are Auto Enrolment thresholds?

Paying into a workplace pension is a simple and effective way to build a retirement fund. To make this easier for you, the government created auto enrolment workplace pensions, requiring your employer to place you into a Workplace Pension if your earnings qualify. Your qualifying earnings are determined by auto enrolment thresholds. In the current 2018/19 tax year the lower threshold is £6,032 and the top threshold is £46,350.

What does this mean for you? It means that your workplace pension contributions will be taken from your earnings between those lower and upper levels. It is your earnings before tax up to the maximum limit of £46,350 per year – less the lower earnings threshold of £6,032.

For example, if you’re earning £20,000 a year, based on the auto enrolment thresholds you’d be making a percentage contribution on £13,968 of your salary minus the £6,032 threshold. You would decide the percentage you’d contribute from the £13,968, with the minimum contribution currently at 3%. Keep in mind 0.6% of the 3% is tax relief from the government, so you’re actually only contributing a minimum of 2.4% net. Your employer would then contribute a minimum 2% for a total 5% minimum contribution towards your retirement. You can learn about how these minimum contribution rates will change on April 6 2019 here.

The third auto enrolment threshold, in between the lower and upper level of qualifying earnings, is the earnings trigger for auto enrolment – currently set at £10,000. This is the threshold at which your employer is legally obliged to automatically enter you into a Workplace Pension. If you’re below this figure you can still ask your employer to enrol you onto their workplace pension scheme.

Every year the Department Of Work And Pensions reviews the auto enrolment thresholds. From 6th April 2019 the lower threshold will be £6,136 and the upper threshold will be £50,000.

Workplace pensions are a great way to work towards a comfortable retirement. Regularly putting aside a little money over a long term period, with this money invested in funds aiming to grow and compound growth of your money, is a long term strategy that could provide you with enough money in retirement to maintain your lifestyle for the decades you’ll be retired.

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 rules can change at any time. This blog is not personal financial advice.