Pension auto-enrolment 10 years on – what is it and has it worked?

The start of this month marked the ten-year anniversary of automatic enrolment. In that time, over 10.7 million employees have been automatically enrolled into a workplace pension.

But how successful is that really, and how could you boost your own workplace pension. Here are some tips.

This article isn't personal advice. Pension and tax rules change, and benefits depend on your situation. This article is based on the current, 2022/23 tax year. Remember, you can’t normally access your pension until at least 55 (rising to 57 by 2028). If you're not sure what's right for you, ask for financial advice.

What is auto-enrolment?

Auto-enrolment is a scheme which legally requires all UK employers to automatically enrol qualifying employees into a workplace pension. It was introduced to help working people save for later life, or consciously decide not to.

Under this scheme, anyone aged 22 or over and earning more than £10,000 will be enrolled. The legal minimum amount that must be paid into your workplace pension is 8% of your qualifying earnings. Usually, an employee pays in 5% (this includes any tax relief from the government) and an employer pays in 3%. Your qualifying earnings are your earnings above £6,240 up to a limit of £50,270.

Let’s say you earn £30,000 a year before tax. Across the year, your total pension contributions would be £1,900 (this includes £237 in pension tax relief). Your employer would have paid in £712, and you would’ve paid in £1,188 (including tax relief).

History and popularity of auto-enrolment

In the run-up to auto-enrolment, there were fears that people would choose to opt-out of the scheme. Thankfully this hasn’t been the case. Of those who qualified each year, around nine out of ten chose to remain in the scheme and save for their future.

Since auto-enrolment first launched in 2012, the minimum payment into a workplace pension has been creeping up, meaning workers are saving more for their retirement.

At first, the minimum payment was 2% of an employee’s qualifying earnings, then 5%, and from 2019 it rose again to 8%. This means that for someone earning £30,000, an extra £1,425 would now be being paid into their pension each year. Over a working life, this can really add up.

Why you shouldn’t opt out of a workplace pension

You have the option to opt-out of a workplace pension. There might be extreme cases when it makes sense, like if you’re dealing with unsecured debts that are unmanageable, but it’s rarely a good idea.

Stopping your workplace pension contributions would essentially be like turning down free money from the government and a portion of your pay cheque.

How to maximise your workplace pension

Employer contributions and matching

See if your employer is willing to boost their contribution if you increase yours.

While lots of employers only pay the minimum, (pension contributions equal to 3% of your qualifying earnings), others are willing to pay more. One employer could be different to the last, and some might offer employer matching.

Employer matching is where your employer matches your contributions up to a certain level. It’s always worth asking your employer what this level is. If they aren’t already paying in the employer maximum, you could consider increasing your payments so they increase what they pay too. Over time, this could give your pension a significant boost.

Salary sacrifice

It’s worth checking if your workplace pension is set up as a salary sacrifice arrangement. These are popular arrangements where you agree to reduce your salary by an amount equal to the value you want to contribute to your pension. In return, your employer pays that amount into your pension.

Because you’re being paid less, you pay less income tax and National Insurance, so you keep more of your take-home pay. But you’ve maintained your pension contribution at the same level. This can be a good way of maintaining or even boosting your contributions.

DISCOVER MORE WAYS TO BOOST A PENSION

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