Back in 2012, the UK government introduced auto-enrolment workplace pensions to get the workforce saving for retirement. The scheme has undoubtedly been successful, and an additional 9.5 million employees are saving for their retirements. Previously, many of these people might not have had any private pension provision, so this is incredibly positive.
As of 2017, it has been compulsory for employers to auto-enroll their employees into a workplace pension. However, despite this requirement, over 25% of employees admit to being unaware of their entitlement to a workplace pension. Therefore, thousands of workers could be missing out on a considerable amount of money for their retirement.
If you are one of these people, here are six essential facts you must understand about auto-enrolment in workplace pensions. Read on to help maximise your pension pot.
1. Criteria For Auto-Enrolment In Workplace Pensions
There are three criteria for being auto-enrolled into a workplace pension, as follows:
- Be employed.
- Aged 22 or over.
- Earn at least £10,000 a year.
If you meet all three of these qualifying criteria, you should automatically be enrolled into a workplace pension by your employer.
2. Your Contributions
Everything is set up for you by your employer, and your pension contributions come directly from your salary each month. Therefore, you don’t need to worry about finding additional cash to save on your pension.
The amount you pay in contributions is 5% of your gross salary or qualifying earnings. This amount is subject to tax relief, which means you benefit from some money that would typically have gone to the government in tax. Whether your contributions are based on your full salary or qualifying earnings will depend on how your workplace pension has been set up. If you’re unsure about what you pay, speak with your employer.
3. Your Employer’s Contributions
Your employer is required to make contributions equal to at least 3% of your salary. However, employers are not limited to 3% so that they can make additional contributions. Some choose to match the contributions made by their employees.
These contributions from your employer are effectively free money as you would not receive them were you not enrolled in the workplace pension. Your employer’s contributions will significantly boost your pension pot. If you’re unsure of the amount your employer is paying, you can check with your HR department.
4. Topping Up Your Pension
Your contributions may come out of your salary automatically without you having to do anything. This aspect of workplace pensions is one of the beauties of the schemes. However, you can also decide to make top-up payments to your pension to boost your pot. Your HR department can advise you on how to make regular additional contributions.
5. You Can Transfer Your Pension Pot
With every new employment you have, you will be auto-enrolled into a new workplace pension, so long as you meet the qualification criteria as detailed above. When you leave your old job, your contributions into its workplace pension ends, and you start contributing to your new employer’s scheme.
As you go through your career, it is your responsibility to stay up-to-date with the various pension schemes you have been enrolled in. If you lose track of these pensions, you could end up losing out on thousands of pounds for your retirement funds. One way to make tracking your pensions easier is to combine them into a single scheme.
Combining your pensions should make them easier to keep track of and reduce the administration. However, these should not be the only rationale for combining your pensions. Before you decide to combine your pensions, there are several things you should consider:
- How will combining pensions affect the overall performance of your pot?
- Will combining your pensions reduce the overall running costs, therefore boosting growth?
- Are there any guarantees or special features you will lose by combining your pensions?
These may not be straightforward questions to answer. Therefore, you might want to seek FCA-regulated financial advice regarding combining your pensions before making any decisions.
6. Opting Out Is Generally Not Advisable
Your employer is legally obliged to auto-enroll you into their workplace pension scheme. You are not obliged to remain in the scheme, and you can decide to opt out. However, in the vast majority of cases, it is advisable to stay in your workplace pension.
If you don’t make any provision, all you will have to fund your retirement is the state pension. The full state pension is currently £179.60 per week if you have paid National Insurance contributions for thirty-five years. These weekly pension payments amount to around £9,339 per year. You should consider whether this amount is sufficient to fund the lifestyle you desire when you retire.
Auto-enrolment in a workplace pension is a great way to save for your retirement. It not only means you are making good use of your money, but you are also benefiting from the money you would not have had otherwise through tax relief and employer contributions. If you need any assistance in fully understanding your pensions, consult a regulated financial advisor. They can help ensure you make the best decisions to boost your retirement funds.
When looking at options for your pension, get in touch with a regulated financial adviser such as Portafina or, view the info at Pension Wise.