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Auto-enrolment pensions: an introduction for employees
Auto-enrolment pensions: an introduction for employees
Nicolas Croix avatar
Written by Nicolas Croix
Updated over a week ago

What is automatic enrolment?

Automatic enrolment is when an employee who meets specific requirements is made a member of a workplace pension scheme without needing to ask to be part of it.

In the past, it was up to workers to decide whether they wanted to join their employer’s pension scheme.

But since 2012, employers have been gradually required to enrol their eligible workers into a workplace pension scheme automatically.

As a result, lots more people can build up savings that they can use to provide them with an income from age 55.

Who will be automatically enrolled?

Whether you work full-time or part-time, your employer will have to enrol you in a workplace pension scheme if you meet these auto-enrolment rules:

  • You work in the UK (including seafarers residing in the UK)

  • You aren’t already in a suitable workplace pension scheme

  • You are at least 22 years old but under State Pension age

  • You earn more than £10,000 a year for the tax year 2021/22.

As long as you meet these auto-enrolment conditions, you’ll also be covered if:

  • you’re on a short-term contract

  • an agency pays your wages, or

  • you’re away on maternity, adoption or carer’s leave.

If you earn less than £10,000 but above £6,240 (for the tax year 2021/22), your employer doesn’t have to enrol you into a scheme automatically.

However, you can still ask to join – your employer can’t refuse and must contribute for you.

How much will I have to contribute?

There is a minimum total amount that has to be contributed by you, your employer, and the government (in the form of tax relief). These minimums are generally: 5% from you (which includes tax relief) and 3% from your employer.

The minimum contribution applies to anything you earn over £6,240 up to a limit of £50,270 (in the tax year 2021/22). This slice of your earnings is known as qualifying earnings. So, if you were earning £18,000 a year, your minimum contribution would be a percentage of £11,760 (the difference between £6,240 and £18,000).

Some employers apply the pension contribution to the whole of your earnings, not just to qualifying earnings.

This depends on how they’ve set up the scheme. Talk to your employer if you’re not sure whether you pay pension contributions on qualifying earnings or full earnings.

Your employer will let you know how much of your earnings you’ll need to contribute.

They might tell you this as a sum of money or as a percentage.

Do I have any choice about being enrolled?

You can opt-out of your employer’s workplace pension scheme after enrolling.

But if you do, you’ll lose out on your employer’s contribution to your pension, as well as the government’s contribution in the form of tax relief. If you decide to opt-out, you can do so from your Moonworkers employee's access.

If you decide to opt-out within a month of being enrolled, any payments you’ve made into your pension pot during this time will be refunded to you. After the first month, you can still opt-out at any time. But any payments you’ve made will stay in your pension pot for retirement rather than be refunded.

You can re-join your employer’s workplace pension scheme later if you want to. By law, your employer must re-enrol you back into the scheme approximately every three years. This is as long as you still meet the eligibility criteria.

Should I stay in or opt-out?

For most people, staying in a workplace pension is a good idea, particularly as your employer must contribute to it.

Your employer's contributions makes to your pension is part of your overall employment package. So opting out is like turning down pay. This makes workplace pensions an excellent way to save for retirement. However, depending on your circumstances, it might not make sense to stay in, for example, if you’re dealing with unmanageable debt.

What happens when my earnings or my age changes?

Your employer should have assessed you on the date their automatic enrolment duties started (their ‘staging date’) or when you joined the company. You’ll be re-assessed at each further pay period if you're not automatically enrolled.

So it’s possible you might not be automatically enrolled initially. But an increase in earnings at a future date might mean you’re automatically enrolled.

If you were under the age of 22 when your employer reached their staging date, you’d be automatically enrolled when you get this age if you earn above £10,000 a year.

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

Whether this option is available depends on your arrangement.

To take advantage of this flexibility, your scheme needs to state in its rules that you can pay contributions at a lower rate. It must also confirm the employer contribution rate in those circumstances.

If you can remain at a lower contribution rate – or reduce your contributions after an increase (and the total contributions fall below 8%) – you will no longer be in a qualifying scheme.

This will trigger the re-enrolment provisions that requires your employer to automatically re-enrol eligible jobholders approximately every three years if they’re not active members of a qualifying scheme.

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