What is Auto-Enrolment?

What is Auto-Enrolment?

If you are employed in a private company – or if you run a small business that employs others – chances are you have come across the concept of auto-enrolment. 

Introduced by the Government to encourage a greater level of saving towards retirement, the last five years has seen millions more people become members of workplace pension schemes and start investing for their future.

Just like any other type of pension plan, a workplace pension offers tax incentives on the money you invest. The difference with workplace pensions, however, is that your employer is under an obligation to set up such a scheme and, for those eligible to join it, required to make a top up contribution for them as well. 

To be eligible, you need to be:

  • Working in the UK
  • Aged at least 22
  • Below State Pension age
  • Earn over £10,000 a year
  • Not already a member of another qualifying workplace pension scheme

Note: even if you are on a short term contract or paid by an agency, elements of the legislation mean you are still covered by the auto enrolment rules. 

There is a minimum amount that must be contributed by yourself, the company and the Government. This is currently set at 5% of income but will increase next year to reach a total of 8%. Which is made up as follows:

  • 4% contribution from you
  • 3% contribution from your employer
  • 1% top up in tax relief, paid by the Government

These contributions apply to your all your annual earnings, including bonuses and commissions, above £6,136, subject to a maximum of £50,270 a year (tax year 2023/24). If you earn more than £50,270 a year, there is no compulsion to make contributions on anything above this. Alternatively, contributions can be based on gross basic salary or total earnings.

You can choose to opt out after you have initially been auto enrolled. But there are two things to bear in mind:

Most importantly, you will miss out on employer and government contributions, you do not receive these if you are not part of the scheme.

Your employer is under obligation to re-enrol you every three years. So to stay opted out, you will need to make an opt out declaration each and every time this happens.

It is therefore in the vast majority of people’s interests to ensure they take advantage of this opportunity.

If you would qualify through age and status, earn more than £6,240 but less than £10,000 a year (tax year 2023/24) you do not have to be enrolled but you can ask your employer to enrol you voluntarily. If you do, they have allow you in and make the top up contributions for you as well. So it can help you start that all important retirement funding.

If you are under age 22, over State Pension Age or earn less than £6,240, you can still ask to be enrolled. However, the employer does not have to say yes and, even if they do, are not required to make any top up contributions for you.

Please continue to have a look around our knowledge centre where you can find more information on final salary pensions or inheritance tax rules that might be relevant or contact us for a more personal recommendation.

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© 2023 A&J WEALTH MANAGEMENT LTD A&J Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. Financial Services Register, no 428590, at www.fca.org.uk/register Registered in England, Company no: 5105933. Registered Head Office: Sawfords, Bigfrith Lane, Cookham Dean, Maidenhead, Berkshire SL6 9PH

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