What Is Auto Enrolment?

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 Is Auto Enrolment?

Auto Enrolment is a Government initiative that was launched in 2012 to encourage people to begin saving for their retirement. In today’s economy it can be difficult to put money away every month that you can’t touch until you reach retirement age. However, it has never been so important to begin saving and investing for our retirement years as the state pension continues to fall and the cost of living continues to rise.

How Auto Enrolment Works

We’ve found that there is a lack of public knowledge of what auto enrolment is and why people are being enrolled onto it. This could be down to the fact that it’s a completely new concept. Usually with pensions you have to physically set them up, but with auto enrolment, you end up paying contributions into your pension without doing anything. This inevitably helps you to help yourself.

Unlike any other pension before, auto enrolment is compulsory for all employers who must, by law, automatically enrol all eligible employees who fall under certain criteria into a workplace pension.

You will be enrolled onto a workplace pension scheme if you:

  • Are between 22 and 65
  • Work in the UK
  • Earn £10,000 a year or more

Once enrolled, you do have the option to opt out of the pension, however, the benefit of remaining in an Auto Enrolment Scheme is that unlike any other pension, your employer has to pay a percentage each payroll towards your pension pot.

How Much Everyone Pays

How much you pay into your pension depends on how much you earn – the higher your salary the more you will automatically contribute. However, the percentage of your monthly earnings that you pay in (pre-tax) will increase in the coming years, but are subject to parliamentary approval.

Date Your Contribution Government Contribution Your Employer’s Contribution Total Contribution
Until April 2018 0.8% 0.2% 1% 2%
6 April 2018 – 5 April 2019 2.4% 0.6% 2% 5%
6 April 2019 onwards 4% 1% 3% 8%

Note: These are the minimum contributions. Source: HMRC

Staging Dates

Employers will be issued with a staging date for when they must begin to auto enrol their employees. Most large employers will have already auto enrolled their staff onto a workplace pension scheme, but medium and small businesses will soon be contacted to inform them of their staging date. If you’re unsure of what you need to do to prepare for your staging date or you’re unsure of when it will be, then visit the Pensions Regulator site for more information.

Should I Stay In or Opt Out?

Once your employer has enrolled you onto a workplace pension, you can opt out. If you decide to do this, you will need to request an opt out form from the pension provider, NOT your employer. You then return this completed form to your employer.

If you choose to opt out within the first month and hand this form in on time, any contributions you made will be refunded to you. However, if you opt out after the first month, any contributions you had made will remain in the pot until you reach the minimum age of 55.

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.

Personal Finance