Auto-Enrolment

Understanding Auto-Enrolment

Auto-enrolment is a government initiative that makes it mandatory for employers to automatically enrol their eligible employees into a pension scheme.
It was introduced to encourage more people to start saving for retirement.
The scheme requires both the employee and employer to contribute a set percentage of the employee’s earnings into the pension pot.

Eligibility for Auto-Enrolment

To be eligible for auto-enrolment, an employee needs to be between 22 and State Pension age, earn over £10,000 a year, and work in the UK.
If an employee meets these criteria and is not already in a suitable pension scheme, they must be automatically enrolled.

Contributions to Auto-Enrolment Pensions

The contributions for auto-enrollment schemes are calculated based on an employee’s qualifying earnings. These are their earnings between the lower and upper earnings limit set by the government.
As of April 2019, the minimum total contribution is set at 8% of qualifying earnings, with at least 3% coming from the employer and the rest being made up of the employee’s contribution and tax relief.

Opting Out of Auto-Enrolment

While auto-enrolment is automatic, an employee does have the right to opt out of the scheme within one month of being auto-enrolled. If they do this, they are treated as though they were never enrolled.
However, the employer has a duty to re-enroll eligible employees back into the scheme approximately every three years. Employees can again choose to opt out.

Auto-Enrolment and Financial Planning

Auto-enrolment ensures that a portion of an employee’s income goes towards saving for their future, thereby forming a crucial part of their financial planning.
The fact that both the employer and the government (through tax relief) contribute to the pension pot can make auto-enrolment a cost-effective way to save for retirement.