What is pension auto-enrolment?
Getting the most from your workplace pension

For the millions of employees automatically enrolled in a workplace pension, the minimum contribution you need to make increased in April 2019. However, your employer’s required contribution also went up—essentially providing many with a hidden pay raise. Here’s everything you need to know about auto-enrolment pensions.

Other top pension guides…
State Pension: Full lowdown including how to boost it.
Pension need-to-knows: The key points for retirement income.
Cheapest SIPPs: Take control of your own retirement saving.

Auto-enrolment – the big questions

How does auto-enrolment work?

In simple terms, this is a chance to enhance your retirement savings through a workplace pension scheme, where both your employer and the Government contribute alongside you.

You won’t be able to access the funds in this pension pot until you turn 55 (rising to 57 in 2028). Until then, the money will be securely managed by a pension provider or scheme.

Auto-enrolment marks a significant shift from the traditional approach to workplace pensions. In the past, employees had to take the initiative to join their employer’s pension scheme. Now, with auto-enrolment, workers are automatically included in their workplace pension plan—though they retain the option to opt out if they wish.

The goal of automatically enrolling employees is to boost the number of people actively saving for their retirement.

As of November 2021, this strategy, known as ‘nudge economics,’ had successfully auto-enrolled 10.6 million workers, with fewer than 10% opting out. Despite this progress, over six million workers remain outside any workplace pension scheme.

The Government is exploring strategies to expand participation in auto-enrolment. Potential changes include lowering the eligibility age to 18, starting contributions from the first pound earned, and including self-employed individuals. Currently, auto-enrolment applies to employees aged 22 and older who earn at least £10,000 annually from a single job.

How much do I have to pay in?

The amount you contribute to your workplace pension depends on your income, as contributions are calculated as a percentage of your earnings. This means the more you earn, the higher your contributions will be. Since April 2019, the minimum contribution rates have increased.

As of 6 April 2019, employers are required to contribute at least 3% of your salary (subject to certain limits discussed below), which is an increase from the previous minimum of 2%.

At the same time, the total minimum auto-enrolment contribution rate rose to 8%. This total includes both your employer’s contributions and your own.

For example, if your employer contributes the minimum 3%, your share must be at least 5% to meet the 8% total. However, if your employer contributes more than the minimum—say 4%—your required contribution drops to 4%.

Your contributions are taken from your gross (pre-tax) salary, meaning the actual cost to you is less than it might appear due to tax relief.

Contributions are calculated based on a specific range of earnings, known as “qualifying earnings.” This includes income between £6,240 and £50,270 (for the 2024/25 tax year).

To illustrate, if you earn £25,000 annually, your qualifying earnings are £18,760 (£25,000 – £6,240). At an 8% contribution rate, £1,501 will automatically go into your workplace pension each year.

If you earn £50,270, the total contribution is £3,522 (£50,270 – £6,240) x 8%. For those earning above £50,270—say £55,000—the 8% contribution is still only applied to qualifying earnings (£6,240–£50,270), keeping the total contribution capped at £3,522.

Minimum contributions (as % of  ‘qualifying’ or band earnings)

Your employer might already offer a more generous pension plan, making these minimum requirements irrelevant in your case.

Additionally, it’s worth noting that employers can set contribution rates higher than the auto-enrolment minimum. This could mean you contribute more than the standard amount. However, your employer cannot set such a high contribution rate that it discourages employees from participating. If such a situation arises, it could prompt an investigation by the Pensions Regulator.

How does the Government’s contribution work?

Most individuals receive tax relief from the Government when they contribute to a pension.

Tax relief essentially reimburses the tax you initially paid on the money you invest in your pension, based on your income tax rate – 20%, 40%, or 45%.

To illustrate, if you want £100 added to your pension, a basic-rate taxpayer only needs to contribute £80. The Government then adds £20 to your pension pot. For higher-rate taxpayers, it takes £60 to achieve the same £100, while top-rate taxpayers only need to contribute £55.

Under auto-enrolment, you typically contribute 4% of your qualifying earnings, with the Government providing 1% in tax relief and your employer adding 3%. This effectively doubles your contributions. For example, someone earning £31,240 will have contributions calculated on their qualifying earnings (£31,240 minus £6,240), which equals £25,000. Their 4% contribution amounts to £1,000, the Government’s 1% adds £250, and their employer’s 3% provides £750. Altogether, £2,000 goes into their pension pot.

However, auto-enrolment applies only to earnings between £6,240 and £50,270. Higher earners paying 40% or 45% tax can claim these higher rates of tax relief on their pension contributions.

While some employers automatically claim additional tax relief for higher-rate taxpayers, not all do. If this applies to you, you may need to reclaim the extra 20% or 25% via a self-assessment tax return. For those who don’t usually file tax returns, contacting HM Revenue & Customs (HMRC) by phone or in writing is another option.

How’s it different from salary sacrifice?

Your employer might offer a scheme known as “salary sacrifice” or “salary exchange” to help you contribute to your pension.

The appeal of salary sacrifice lies in the fact that these pension contributions are made before deductions for tax and National Insurance (NI). Since the contributions come directly from your gross salary and are transferred into your pension, you end up paying less income tax and NI. Essentially, the Government allows you to save by redirecting the tax and NI you would have paid into your pension instead.

For example, as a basic-rate taxpayer, you benefit from saving 20% on income tax and an additional 12% on NI. If you’re a higher-rate taxpayer, the savings increase to 40% on income tax and 2% on NI, while additional-rate taxpayers can save 45% on income tax and 2% on NI.

Moreover, some employers might also contribute all or part of their NI savings to boost your pension further.

WARNING: Over a million low-income workers miss out on pension tax relief due to scheme rules. More than a million individuals in low-paid jobs are currently excluded from receiving tax relief on their pension contributions, largely because of how their workplace pension schemes are structured. In ‘group personal pension’ schemes, even non-taxpayers—those earning under the £12,570 personal allowance—qualify for a basic-rate tax boost on their contributions.

In contrast, the majority of public sector and ‘trust-based’ occupational pension schemes only offer tax relief to individuals earning above the £12,570 threshold. This leaves an estimated 1.2 million low earners—predominantly women—enrolled in these ‘net pay’ schemes without access to millions in tax relief annually on their pension savings.

Starting in the 2024-25 tax year, a significant change will allow all individuals making pension contributions to receive a tax relief top-up averaging £53 per year. The initial payments, which will be taxable as income, are set to be distributed directly to eligible contributors during the 2025-26 tax year.

Who is entitled to a workplace pension?

Auto-enrolment applies to individuals aged 22 up to the state pension age (currently 66, but set to rise to 67 and eventually 68) who earn over £10,000 annually from a single job and are employed in the UK.

Certain exceptions exist, such as those who are self-employed or run a sole-director company without additional staff.

If your earnings fall below £10,000 but exceed £6,240, you still have the option to request enrollment in your employer’s auto-enrolment pension scheme. Employers are legally required to accept and contribute to your pension in this scenario.

The Government is exploring the possibility of lowering the minimum age for auto-enrolment to include workers aged 18 to 21, aiming to encourage earlier pension savings. However, no specific timeline for implementing this change has been confirmed yet.

How do I check I’m auto-enrolled?

All employers are required to provide a workplace pension for eligible employees. By April 2017, the majority of employers were expected to have joined the scheme.

When you are automatically enrolled in your employer’s workplace pension scheme, they are obligated to notify you. This communication must include details about:

• The date they added you to the pension scheme
• The type of pension scheme and who runs it
• How much they’ll contribute and how much you’ll have to pay in
• How to leave the scheme, if you want to
• How tax relief applies to you

If you have already been enrolled, you’ll also see deductions for your pension contributions on your payslip.

Do I have to enrol?

No. You won’t need to take any action to join, as you’ll be automatically enrolled. However, if you don’t wish to participate, you must opt out.

If you decide to opt out, make sure to do so within a month of enrollment. Otherwise, you won’t be eligible for a refund of any contributions made to your pension. Rest assured, the money isn’t lost; it’s just inaccessible until you reach retirement age.

If you’re facing financial challenges and need to boost your take-home pay, don’t hesitate to opt out. You can do so at any time. Just remember, the funds you’ve already contributed will remain locked until you retire.

Who won’t be automatically enrolled?

Your employer is not typically required to automatically enrol you if you don’t meet the conditions outlined above or if any of the following situations apply:

• You have already informed your employer that you are leaving, or they have given you notice of termination.
• You hold proof of your ‘lifetime allowance protection‘ (such as a certificate from HMRC).
• You have previously enrolled in a pension scheme through your employer.
• You received a lump sum payment from a workplace pension scheme that has been closed (a ‘winding-up lump sum’), and then left and rejoined the same employer within 12 months of receiving the payment.
• More than 12 months before your employer’s auto-enrolment date, you opted out of the pension scheme provided by your employer.
• You are a citizen of another European Union member state and are enrolled in an EU cross-border pension scheme.
• You are part of a limited liability partnership.
• You are a director without an employment contract, but you employ at least one person in your company.

Typically, you can still join the pension scheme if you wish, as your employer is not permitted to deny your request.

Furthermore, if you hold multiple jobs but earn less than £10,000 annually in each one, you must actively choose to opt in. Even though your total income exceeds the auto-enrolment threshold, each employer evaluates your eligibility individually.

Why might I want to opt out?

Auto-enrolment is often seen as a form of salary increase, which makes it beneficial for most people. However, this boost in pay does come with a downside: you’ll notice a reduction in your take-home pay each month.

Instead of dwelling on this short-term decrease in income, it’s helpful to view auto-enrolment as an investment in your future retirement.

That being said, there are certain situations where opting out or even lowering your contributions (if your employer permits) might be the better choice, including…

• If you’re carrying significant debt, such as payday loans or overdraft fees, it’s generally a good idea to prioritize paying these off before contributing to your pension. Once you’ve tackled the high-interest debts, you can then rejoin auto-enrolment.
• If you’re nearing retirement and have minimal savings, increasing your pension contributions might unintentionally affect your benefits. However, this is a rare occurrence. To be sure, you can use our 10-minute Universal Credit and benefits checker or consult with Citizens Advice for tailored guidance.
• If you already have an existing pension, particularly one with substantial value, you may have been at risk of exceeding the lifetime allowance (LTA) due to auto-enrolment. The LTA was £1,073,100 until 5 April 2023. However, from 6 April 2024 onwards, the LTA has been abolished, meaning there is no longer a cap on the total amount you can contribute to your pension throughout your career.
• If your pension situation is more complex, it’s wise to seek advice from an independent financial advisor. If you don’t have one, the Government’s Pension Wise service is a great resource, offering free guidance for individuals over 50 on pension planning and management.

Do I have to opt out every year?

If you decide to opt out of your workplace pension, your employer is required to automatically re-enrol you every three years, provided you remain eligible. You will receive a notification from your employer informing you of the re-enrolment, and you’ll have a month to opt out again if you wish to do so.

Is it worth paying more than the minimum into the scheme?

If you’re able to, it’s certainly worth considering – particularly if your employer offers to match your contribution, as this essentially acts as a salary increase.

That said, it’s important to balance this with any contributions you’re making to a private pension, so you can decide how much you’re comfortable contributing and what fits within your budget.

What happens if I’m already paying into my company’s pension scheme – will I end up having to pay into two pensions?

Auto-enrolment aims to ensure that all individuals who are not yet contributing to a workplace pension scheme start doing so.

The specific scheme you’ll be enrolled in depends on your employer’s choice. This means that if you’re already part of a workplace pension plan, you may be enrolled in a different scheme compared to colleagues who are being auto-enrolled, although it is common for it to be the same scheme.

What happens to my pension if I change jobs?

Your workplace pension is your personal asset, and it will remain yours when you reach retirement age. While you can enroll in a workplace pension plan with a new employer, you may not be able to continue contributing to your previous pension scheme or merge it with your new one. To get clarification, it’s important to reach out to your pension provider directly.

What happens if I have more than one job?

If you hold multiple jobs, all your employers will automatically enroll you in the pension scheme, provided you meet the required criteria.

However, if you have more than one job and earn under £10,000 annually in each position, you must actively opt in. This is because, even though your combined income exceeds the auto-enrolment threshold, each employer evaluates you individually.

I’m self-employed – why aren’t I getting an auto-enrolment pension?

Auto-enrolment is typically for employees, but self-employed individuals may still be eligible in certain cases, such as ‘personal service workers,’ who can be automatically enrolled. However, there is ongoing debate about who qualifies as a personal service worker.

Self-employed individuals can independently begin saving for retirement by setting up a personal pension plan. They also have the option to join NEST (National Employment Savings Trust), a government-established workplace pension scheme.

For those under 40, there’s an additional retirement saving option—read the Lifetime ISA section below for more details.

What happens if my employer goes bust?

Any pension contributions made by you or your employer are held by the pension provider, not your employer. In the event that your employer goes bankrupt, your pension fund will be protected, ensuring your retirement savings remain secure.

Additionally, if your pension provider faces financial difficulties, you still have safeguards in place. For more details, check our Pension need-to-knows for more.

Does this stop me getting a Lifetime ISA?

Absolutely! You can take advantage of both. Auto-enrolment is essentially like a pay increase – a benefit you wouldn’t want to pass up. On the other hand, Lifetime ISAs – available to individuals aged 18 to 39 – offer a way to save for retirement, with access to the funds at age 60. The major advantage? A 25% government bonus, which means for every £4 you contribute, the government adds £1.

For more details, check out our comprehensive guide on Lifetime ISAs.