The auto-enrolment rules were first introduced in 2012 and aimed to help younger people start saving for their retirement earlier – although you do have the option to opt out if you wish
Millions of workers aged between 22 and 66 should make a simple check as they could be missing out on a hidden pay rise potentially worth thousands.
Under current UK laws, workers over the age of 22 and under 66 is automatically enrolled into a workplace pension through their job. The auto-enrolment rules were first introduced in 2012 and aimed to help younger people start saving for their retirement earlier – although you do have the option to opt out if you wish.
You are automatically enrolled when you earn above £10,000, although the lower earnings limit – the point from which your earnings are used to calculate the amount of pension contributions that will be paid into a scheme – is currently set at £6,240.
When you pay into your workplace pension, your employer must also contribute to your pension savings. The minimum total auto-enrolment contribution is 8%. Employers must pay at least 3% and the employee the remaining 5%. The level has not changed since 2019. Some employers pay in more than the minimum, matching what you put in. This means you’re getting extra money you wouldn’t have got otherwise, even though you can’t really get it until later in life.
Alongside this, you can also get tax relief on your contributions. Basic rate taxpayers get 20% tax relief, higher rate taxpayers can claim 40% and additional rate taxpayers get 45%. This means for basic rate taxpayers, putting £100 a month in your pension only reduces your actual take-home pay by £80.
If your employer then puts 3% in, for every £100 a month you contribute, your employer would pay £60. This means if you put £160 a month into your pension, it would have only cost you £80. For higher rate taxpayers, the cost is smaller at £60 for every £100 they invest in their pension. So if workers opt out they may see a small increase in your monthly salary, but it will mean missing out on a bigger pension after retirement. This has been described as a “hidden pay rise” by financial experts, including MoneSavingExpert founder Martin Lewis. The MSE founder has also previously urged workers to make this check.
When you start a job you should be informed about your pension including which provider it’s with. If you’re not sure, ask your employer for information. If you are not in a workplace pension and are eligible, you should contact your employer in writing. You could also ask for compensation if you think you’ve lost out financially or it’s taken time and effort for you to sort.
If you’re not happy with the way they handled the complaint, or they have not responded within eight weeks, you can escalate your complaint to The Pension Ombudsman.
Since its introduction, millions of workers have paid into a workplace pension. Before that, individuals set up their own saving plans, either through their work or privately. By December 2021, around 10.6 million workers were automatically enrolled, and more than 1.9 million employers met their pension duties.
In recent years, the government proposed lowering the threshold from 22 to 18. However, Labour recently indefinitely delayed a review of auto-enrolment. According to reports, Chancellor Rachel Reeves blocked the review amid concern that it would place further burdens on businesses already hit by the National Insurance increase from her Budget. Government sources however have reportedly insisted that the pensions review will happen but no date has been confirmed.