A workplace pension is a way of saving for your retirement that’s arranged by your employer. It works by your employer putting a percentage of your pay after tax into a pension scheme every payday.
You can also contribute and “top up” what you’re getting from your employer. You’ll also get a basic rate (20%) tax relief on these contributions – usually the pension provider will get it for you and add it to your pot. This is called “automatic relief”.
However, if you earn over the higher tax rate threshold (£50,270 in the 2023/24 tax year), you can claim additional tax relief (another 20% or 25%). You do this by filing a Self Assessment tax return.
Auto-enrolment is short for ‘automatic enrolment for workplace pensions’. If you are a working employee and over the age of 22, your employer has to automatically provide you with a pension scheme. The only exception to this rule is for the directors of limited companies if they do not have a specific contract of employment.
Auto-enrolment was first introduced in some cases in 2012, and since February 2018 it has been law to provide all eligible employees with a pension scheme. This was put into place in order to prevent people from missing out on the security of a workplace pension simply because it wasn’t offered.
To be eligible for auto-enrolment, you must meet the following criteria:
The amount that you pay into your pension depends on your qualifying earnings before the deduction of Income Tax and National Insurance. Between yourself, your employer and government tax relief, your pension contribution will total 8.0% of your qualifying earnings, with you paying 4%, your employer paying 3% and government tax relief paying 1%. This is the minimum contribution, so we recommend that you check your contract of employment for specific details as this may be higher, depending on your employer.
As an eligible employee, you do have the right to opt-out of auto-enrolment and do not have to contribute to a workplace pension – you would contact your employer to discuss this. This must then be re-visited every three years and you can choose to opt-in at any time. Your employer can’t postpone this.
Even if you are on a zero-hours contract, you’ll be automatically enrolled in the same way as other workers if you earn more than £192 a week, £833 a month or £10,000 a year. This is subject to you meeting the other criteria listed above.