With almost 10m automatically enrolled in pension schemes, we explain auto-enrolment in a nutshell

With almost 10m automatically enrolled in pension schemes, we explain auto-enrolment in a nutshell

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Nearly 10 million workers have been enrolled in auto-enrolment pension schemes, according to figures from the Department for Work and Pensions.

But what does that mean? What’s auto-enrolment when it’s at home, and how could it benefit you? What are the other options?

Let’s go through the basics. The government is preparing to raise the minimum contribution from 5% to 8% in April, so it’s a good time to get to grips with how it works.

In a nutshell: What is auto-enrolment?

For a long time there was a lot of talk about how not enough people were putting money into a pension, and even if they were, they were taking their time about it or the firms they worked for weren’t really helping.

You can read my article about the benefits of compound interest here to understand why that is short-sighted.

The government’s solution to this was to launch a workplace pension scheme where people were enrolled automatically, that is unless they opt out. Companies have to enrol their staff in the scheme and pay money into it or they’re fined.

When did auto-enrolment launch and how does it work?

It was introduced in 2012. Once enrolled in the scheme you and your employer will contribute a certain percentage of your wage each month into your pension.

You can opt out but you have only one month after being automatically enrolled to leave the scheme. Employers have to reapply the auto-enrolment every three years (yep, the government really want you to do this!), so you will have to opt out again if you’re really not keen. Think hard about that, you’ll miss out on employer contributions if you do opt out.

This only applies if you’re not already in a qualifying workplace pension, you’re over 22, below the state pension age and earn more than £10,000 a year.

How is it going and what’s next?

Nearly 10 million workers have been enrolled in auto-enrolment pension schemes so far and opt-out rates are low among younger savers.

The number of people leaving an employer’s auto-enrolment pension scheme actually dropped following a contribution increase in April last year to just over 2.5%. Most opt-outs are due to employees leaving their roles or becoming ineligible.

There are minimum contributions for both worker and employer, though both could opt to put more in if they wanted. The table below from Which.co.uk highlights what you and your employer must contribute.

In April, contributions will be increased from 5% of earnings to 8%.

Auto-enrolment contributions 2018

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