How have workplace pensions changed?
To help more people save for their retirement, the government has made major changes to how workplace pensions operate.
In the past, it was up to workers to decide whether they wanted to join their employer’s pension scheme.
But now, all employers will have to automatically enrol their eligible workers into a workplace pension scheme unless the worker chooses to opt out.
As a result, many more people will be able to build up savings to provide them with an income when they choose to stop working.
When did automatic enrolment start?
Automatic enrolment was introduced in stages since 2012.
The largest employers started first, followed by medium-sized and then small employers. All employers, including new employers, should now be part of automatic enrolment.
If you haven’t yet been enrolled in a scheme or been offered one, talk to your employer and find out why.
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:
- Work in the UK
- Are not already in a suitable workplace pension scheme
- Are at least 22 years old, but under State Pension age
- Earn more than £10,000 a year for the tax year 2020/21
As long as you meet these criteria 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 ( tax year 2020/21) your employer doesn’t have to automatically enrol you into the scheme.
However, you can still ask to join, in which case your employer can’t refuse and must make contributions 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.
From April 2019 the total minimum contribution is currently set at 8% of your earnings. This is made up of 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 £50,000 (in the tax year 2020/21). This slice of your earnings is known as “qualifying earnings”.
So, if you were earning £18,000 a year, your contribution would be a percentage of £11,760 (the difference between £6,240 and £18,000).
Some employers apply the minimum pension contribution to the whole of your earnings, not just to qualifying earnings. This depends on how they have set up the scheme. If you are not sure whether you pay pension contributions on qualifying earnings or on full earnings, talk to your employer.
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.
If they give you a percentage, you can find out what it means in pounds and pence here.
Do I have any choice about being enrolled?
You can opt out of your employer’s workplace pension scheme after you’ve been enrolled.
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, ask the people who run your employer’s workplace pension scheme for an opt-out form. You must then return your completed form to your employer, not to the people who run the scheme.
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 at a later date if you want to.
By law your employer must re-enrol you back into the scheme approximately every three years, 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. The contribution your employer makes to your pension is part of your overall employment package – so opting out is like turning down pay.
This makes workplace pensions a great way to save for retirement.
However, there are circumstances in which it might not make sense to stay in. For example, if you’re dealing with unmanageable debt.
Automatic enrolment when you have more than one job
If you have more than one job, each job is treated separately for automatic enrolment purposes. This means some jobs will sign you up to pay into a pension automatically, while others won’t.
Each of your employers will check whether you’re eligible to join their pension scheme. If you are, then you’ll be automatically enrolled in that employer’s workplace pension scheme.
If you don’t want to be a member of more than one scheme you can choose to opt out of one of them, but you don’t have to. You can pay into more than one pension scheme if you want to.
If you earn more than £6,240 but less than £10,000 in any of your jobs you won’t be automatically enrolled in that employer’s pension scheme, but you can ask to join. If you do, your employer also has to contribute.
If you earn less than £6,240 a year in any of your jobs you can still ask to join that employer’s pension scheme, but your employer doesn’t have to contribute.
Our articles cover a wide range of mainstream financial products and employee benefits. Terms and conditions may vary depending on your provider. Please ensure you check the specific terms and conditions of any financial products and employee benefits available to you from your employer.