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Almost every employee in the UK is eligible for workplace pensions. It’s mandatory for employers to set their employees for auto enrolment pensions, even if they only have one. This guide is for both, whether looking to strengthen compliance or understand how it affects their paycheck.
Disclaimer: This article focuses on UK auto enrolment. Pension regulations vary significantly by country, so information from other nations, such as Ireland’s upcoming Auto Enrolment scheme, is excluded.
When Did Pension Auto Enrolment Start?
Auto enrolment started in 2012, aimed at helping more people contribute to their retirement savings. Before this, saving for a pension was often something people put off or just did not get around to. Automatic enrolment changed that by making workplace pensions a normal part of having a job.
Why It Exists
The UK government brought in auto enrolment considering that not enough people were saving enough for retirement. Too many people rely only on the State Pension. By making workplace pensions automatic, the government hoped to get millions more people saving.
How Does Auto Enrolment Pensions Work?
Auto enrolment means that if you are eligible, your employer automatically signs you up for a workplace pension scheme. You do not have to ask, as it is automatic. You contribute a small portion of your salary, your employer puts in money, and the government helps out with tax relief.
It’s designed to make saving for retirement age as easy as possible. The idea is to make sure more people have a secure state pension alongside their private savings.
Who Qualifies for Automatic Enrolment?
Being ‘automatic’ does not mean it is for everyone. You will only be automatically signed up if you are a jobholder who:
- is between 22 and State Pension age
- earns more than £10,000 a year (auto enrolment pension threshold)
- usually works in the UK and be classified as a ‘worker’
Freelancers, agency staff, or anyone working under a contract for a boss or company, as long as they are not running their own business, may also qualify.
In some cases, your employer does not have to automatically enrol you, such as if you have given notice to leave your job, have lifetime allowance protection, or have already taken an eligible pension.
Even if you do not meet these requirements, like not being at the ideal starting age for auto enrolment pension, you may still be able to join, and your employer will usually have to allow you.
If you are self-employed (e.g., sole trader), you will not be automatically enroled and will have to set up your own pension plan. Many choose Self-Invested Personal Pension (SIPP).
How Much Is Paid into a Workplace Pension?
With auto-enrolment, saving for your retirement is a team effort. Here’s how much each currently pays into the workplace pension:
- Employee – 5% of qualifying earnings
- Employer – 3% of qualifying earnings
- Government – tax relief (e.g., if you pay basic tax, for every £4 you put in, the government adds £1, so £5 goes into your pot)
Adding up your part, your employer’s, and the government’s, the smallest total amount going into your pension is currently 8% of your ‘qualifying earnings’. These percentages are known as the auto enrolment pension rates.
Compounding is the long-term secret to pensions, which means your money earns money, and the cycle continues until you retire.
What Are ‘Qualifying Earnings‘?
This is the specific part of an employee’s earnings—their salary—that auto-enrolment payments are based on. It is usually earnings between a lower and upper limit set by the government each tax year. For the 2025/26 tax year, it is generally earnings between £6,240 and £50,270. The percentage of employee contribution does not include all their income.
Employees Guide to Auto-Enrolment
If you have already been automatically signed up for a workplace pension, learn what happens next and how you can maximise your retirement savings.
What Happens When You Are Enroled?
Once you are enroled to a pension plan, your employer will have to:
- Send you a welcome letter – includes when you joined, the name of the pension plan provider (e.g., Standard Life), how much you and your employer will pay in, and how you can opt out if you decide to.
- Start taking out your pension contribution from your payroll and contributing on their end.
All the money goes into your pension pot, usually in one of the defined contribution schemes. In this scheme, the money you get back depends on how much was paid and how well the investments do. This is different from older defined benefit schemes that guaranteed a certain income.
Understand Your Contributions
As money is taken out of your pay, it’s important to understand the full picture:
- Your take-home pay will apparently be a bit less.
- This deduction also affects your National Insurance contributions.
- Your tax relief arrangement will usually use ‘relief at source,’ which means your pension money is taken out of your salary after tax has been worked out. The onus of claiming your tax relief from the government is on the pension provider. However, if you are a higher earner, you will have to claim the higher rate tax relief on your pension contribution.
Can You Opt Out?
You can opt out of the workplace pension scheme, but this is usually not the best idea. But if you need to, check your employer’s welcome letter, as it includes how you can leave the scheme.
If you opt out within one month of being signed up, any money you have paid will usually be refunded to you in payroll. However, if you opt out after that first month, you will most likely not get your contributions back. The money will stay in your pension pot until you reach the minimum age to withdraw.
Just know that opting out means missing out on two huge benefits—free money from your employer’s contributions and the government’s tax relief.
Can You Go Back?
Even if you opt out, your employer has to automatically sign you back up for a pension scheme about every three years—if you are still eligible. This gives you another chance to start saving for retirement. If you still do not want to save, you will have to opt out again.
How to Manage Your Pension Pot
Once you are enroled, be aware that you will generally not get hold of your money until you reach pension age. Currently, it’s set at 55, but it will go up to 57 from 2028.
If you leave your job, your workplace pension pot stays with the pension company. It’s sometimes called a ‘dormant’ or ‘frozen’ pension. You usually have choices:
- Leave it where it is.
- Move it to your new employer’s workplace pension scheme.
- Combine it by moving it into a personal pension plan, like a Self-invested Personal Pension (SIPP).
The government is also thinking about how to automatically combine small pension pots from different jobs to make them easier to manage.
It is crucial to keep records of all your pension companies from different jobs. Lost pensions are a common problem, so stay organised. You can also use an auto enrolment pension calculator online to guess how much your pension might be worth when you retire.
Employers Guide to Auto-Enrolment Duties
If you are an employer in the UK, complying with your auto-enrolment duties is compulsory even if you have only one staff member, per Pensions Act of 2008. The Pensions Regulator (TPR) makes sure you follow.
How to Stay Compliant
Auto-enrolment duty starts from the first day your first employee begins working. There is no way around it, even if you think your staff are not interested in a pension.
Here are what you need to do:
- Check your employee’s eligibility right from their starting date at work.
- Pick the right pension scheme and consider areas, such as costs, tax relief arrangements, if it connects easily with your payroll system, etc.
- Automatically enrol an employee once you find out they are eligible.
- Pay the minimum employer contribution.
- Take the employee’s contribution from their salary.
- Within six weeks from when you enroled an employee, be sure to send them a welcome letter. Providing a newsletter to all staff about this could also be helpful.
- If they are still not eligible, be sure to stay updated, as salary (and people’s ages) can change. Your auto-enrolment duties do not stop.
- After every three years, you have to automatically sign up any eligible staff who had previously opted out of a workplace pension scheme.
- Within five months of your ‘duties start date’, you have to fill out an online ‘declaration of compliance’ with The Pensions Regulator. Even if you did not have any staff to enrol, you still have to do this.
Consequences for Non-Compliance
Ignoring your auto-enrolment duties can jeopardise your business. Consequences include:
- Warning letters and notices for smaller mistakes.
- Fixed fine of £400 if the non-compliance is serious or you did not immediately act on it.
- If you ignore the warnings, fines may increase every day, anywhere from £50 a day for very small businesses (1 to 4 staff) up to £10,000 a day for big ones (500+ staff).
- TPR can force you to pay any pension money you owe, often with extra interest.
- You can get fined if you try to make someone opt out or if you say they can only get a job if they opt out.
- If you deliberately and seriously fail to follow the rules, TPR can take you to court, which could mean big fines or even jail time, especially since this is a legally binding matter involving taxation.
Beyond the money problems, non-compliance can really hurt your business’s reputation and make your employees lose trust in your workplace pensions.
Frequently Asked Questions
I'm a new employer, where do I start?
Your first step is knowing you have duties. Then, figure out your ‘duties start date’ (usually when your first staff member started). It is smart to get help from an expert after that.
Can I postpone auto-enrolment?
Yes, employer can choose to wait up to three months before checking and enroling staff. This is called ‘postponement’. You might do this to match up with your payroll dates, for temporary workers, or just to get things ready. But you must tell your staff in writing about the delay within six weeks, and they still have the right to join the pension scheme during this time if they want. This delay does not change your deadline to tell The Pensions Regulator you are compliant.
My employees say they don't want a pension – do I still have to do this?
Yes, absolutely. The ‘auto’ in auto-enrolment means you have to enrol them if they are eligible. Whilst they can choose to opt out, your job as an employer is to set up the pension scheme and sign them up. It is a legally binding duty.
Are there different rules for different types of workers?
Yes. The Pensions Regulator has detailed definitions for ‘eligible jobholder’ (automatic enrolment), ‘non-eligible jobholder’ (who can choose to join and get employer contributions), and ‘entitled workers’ (who can join, but the employer doesn’t have to contribute). Your checks need to figure out which group each worker falls into based on their contract.
Get Help from a Business Advisor
Auto-enrolment has complicated rules, specific salary limits, and ongoing compliance needs. Getting professional help can make sure you do everything right and on time, avoiding costly mistakes and penalties related to tax, National Insurance, and payroll.
Legend Financial is here to help. With over a decade of experience in UK payroll and pension compliance support, we know our stuff. We work hard to make sure your business follows auto enrolment pensions rules. Contact Legend Financial today for a consultation!
