Auto-enrolment has been around since 2012 when it was launched as a government initiative to bridge the gap left by the demise of final salary pension schemes. It resulted in almost ten million additional people saving for their retirements. Without auto-enrolment, many of these people may not have had any financial provisions to retire on.
In 2017, the government made it compulsory for employers to enroll their workers into a workplace pension automatically. However, there remains around a quarter of the workforce who are unaware of auto-enrolment. Moreover, some are even oblivious that they have a pension, which means they could miss out on a substantial amount of money when they retire.
Therefore, we have compiled five must-knows about auto-enrolment, so you have the information you need to maximise your retirement funds.
5 Must-Knows About Auto-Enrolment
1. Qualifying Criteria
To be automatically enrolled into a workplace pension scheme, you must meet the following criteria:
- Be employed.
- Have a salary of over £10k.
- Be at least twenty-two.
If you meet all of these criteria, you should already be enrolled in a workplace pension.
Making contributions to your pension is straightforward, and they come directly from your wages. Therefore, you don’t have to put any money aside to save for your pension contributions.
Your contributions consist of 5% of your gross salary. This figure is made up of 4% paid by you and the other 1% in tax relief from the government. You should be aware of how much you are paying in contributions. If you don’t yet know, you should contact your HR department.
2. Your Employer’s Contributions – Free Money!
Your employer is obliged to contribute to your pension, and this amounts to at least 3% of the value of your gross salary. This figure is a minimum contribution, and many employers choose to match the personal contributions of their workers, while some even exceed that.
Your employer’s contribution is money that you would not receive were you to opt-out of your workplace pension. Therefore, you can class it as ‘free’ money, so think carefully before giving it up. Again, if you are unaware of how much your employer contributes to your pension, speak with your HR department.
3. Pension Top-Ups
A significant advantage of auto-enrolment is that you don’t have to do anything if you don’t want to. However, you do have the option of making top-up payments, and doing so can substantially boost your pension fund. If you’re going to start making top-up payments from your salary, speak with your HR department.
4. Moving Your Pension Pot
If you change jobs, you will start another workplace pension automatically. Therefore, if you frequently change employers, you could have several workplace pensions. Of course, when you leave one job, your contributions to that workplace pension will stop and commence in your new scheme.
The money you’ve already paid into your previous workplace pension will remain in that pension scheme. However, it is your responsibility to keep track of your various pensions. If you misplace or lose track of one, you could end up missing out on a substantial amount of money for your retirement.
An excellent method of keeping control of your various workplace pensions is to move them all into one scheme. However, cutting down on administration should not be your sole reason for combining your pensions. If it is not financially beneficial for you to combine them, you should leave them as they are. Here are some questions to ask yourself before deciding to combine your pensions:
- Does combining pensions improve the overall performance?
- Does it reduce administration costs, therefore allowing your pensions to grow more?
- Does combining mean you’ll have to give up any significant beneficial features?
Answering these questions can be challenging, so you might want to consider consulting a regulated financial adviser before making any decision.
5. Your Opt-Out Option
Although it is compulsory for employers to auto-enroll workers into a workplace pension, it is not mandatory for you to remain within the scheme. You have the option to opt-out, but do not take this decision lightly.
As we mentioned earlier, opting out means you are effectively turning down free money from your employer. More significantly, if you have no private pension provisions in place, you will rely on the State Pension to fund your retirement. Currently, the full State Pension is £179.60 per week, or around £9,339 a year.
To qualify for the full amount, you’ll have to have made thirty-five years’ worth of National Insurance contributions. Even if you have done so, you should consider whether the State pension alone is sufficient to sustain the lifestyle you want in your retirement.
Get Smart About Pensions
Hopefully, you now understand more about the importance of workplace pensions, thanks to these five must-knows about auto-enrolment. To be as financially prepared as possible for your retirement, you should get smart about pensions. Some of the smartest things you can do are stay in your workplace pension scheme, make as many top-up payments as you can, and enjoy that free money from your boss!When looking at options for your pension, consider using a regulated financial adviser like Portafina or, view the info at Money Helper.