What is pension auto-enrolment?

It depends on how much you earn, since you contribute a percentage of your pay – the more you earn, the more you pay in. The minimum percentage for contributions increased in April 2019.

From 6 April 2019, the minimum your employer has to contribute increased to 3% of your salary (within certain limits detailed below), up from 2% previously.

At the same time, the minimum total auto-enrolment contribution rose to 8% (that's the total you and your employer together must put in).

So if your employer is only putting in the minimum 3%, your minimum contribution is 5%. But if your employer is putting in more than the minimum, you could pay in less than 5% (eg, if your employer puts in 4%, you only need to contribute 4%).

Your contribution is from your pre-tax salary, so for most people the cost to their pocket works out less than it sounds.

Importantly, too, contributions are based on a band of what are called 'qualifying earnings'. This is any pre-tax employment income between £6,240 and £50,270.

So if you earn £25,000, you'll get at least £1,501 – (£25,000 – £6,240) x 8% – automatically pumped into your workplace pension.

If you earn £50,270, the total will be £3,522 – (£50,270 – £6,240) x 8% – but if you earn say £55,000, the 8% is still based only on earnings between £6,240 and £50,270, so the total minimum contribution remains £3,522.

Your employer may already have a more generous pension scheme, in which case these minimums are irrelevant.

Also bear in mind that your employer can set higher contribution rates than the auto-enrolment minimum, so you could end up paying more. But your employer can't set the contribution rate so high that it acts as a deterrent for employees to contribute – if this happens, it may be investigated by the Pensions Regulator.

Some firms will claim back tax relief for higher earners automatically, but many won't – which means you'll have to claim the extra 20% or 25% via a self-assessment tax return. If you don't normally fill in a tax return, call or write to HM Revenue & Customs (HMRC).

How's it different from salary sacrifice?

Your employer may allow you to contribute to your pension under what is called 'salary sacrifice' or 'salary exchange'.

The attraction of salary sacrifice is that these pension contributions are made BEFORE your tax and national insurance (NI) are taken off. As contributions come out of your pre-tax salary and straight into your pension, you pay a reduced amount of income tax and NI. The Government gives you these savings – with the money that you would have paid in tax and NI going into your pension.

So a basic-rate taxpayer would get the usual 20% income tax plus 12% for NI contributions back. A higher-rate taxpayer would get 40% tax plus 2% NI contributions, while an additional-rate taxpayer would get 45% tax plus 2% NI.

Your employer may also put in some or all of its NI savings.

Auto-enrolment covers people between 22 years old and state pension age (currently 66, though increasing to 67 and eventually 68), who earn more than £10,000 (from one job) and work in the UK.

There are exclusions, such as if you're self-employed or you're a sole director company with no other staff.

If you earn less than £10,000 but more than £6,240, you can also ask to join your employer's auto-enrolment pension scheme. Your employer can't refuse and must also contribute.

The Government is looking at extending auto-enrolment to 18 to 21-year-olds to get younger people to start saving for their pensions, but there is no set date for when this will come into effect.

All employers have to offer a workplace pension to eligible workers. Most employers should have signed up to the scheme by April 2017. 

Your employer must write to you when you’ve been auto-enrolled into their workplace pension scheme. They must tell you:

• The date they added you to the pension scheme

• The type of pension scheme and who runs it

• How much they'll contribute and how much you’ll have to pay in

• How to leave the scheme, if you want to

• How tax relief applies to you

If you have already been enrolled, you'll also see deductions for your pension contributions on your payslip.

No. But you'll be automatically opted in, which means you have to opt out if you don't want to take part.

Also, unless you opt out within a month of joining you can't get a refund of any money you've paid into a pension scheme. You won't lose this money – you just won't be able to access it until you reach retirement age.

Don't be afraid of opting out if, for example, you're having financial difficulties and need to maximise your take-home pay. You can opt out whenever you like – but as above, you won't be able to access the cash you've already contributed until you hit retirement age.

Who won't be automatically enrolled?

Your employer usually doesn't have to enrol you automatically if you don't meet the criteria above or if any of the following apply:

• You've already given notice to your employer that you're leaving your job, or it's given you notice.

• You have evidence of your 'lifetime allowance protection' (for example, a certificate from HMRC).

• You've already taken a pension arranged through your employer.

• You get a one-off payment from a workplace pension scheme that's closed (a 'winding-up lump sum'), and then leave and rejoin the same company within 12 months of getting the payment.

• More than 12 months before your employer's auto-enrolment start date, you left ('opted out' of) a pension arranged through your employer.

• You're from another European Union member state and are in an EU cross-border pension scheme.

• You're in a limited liability partnership.

• You're a director without an employment contract and employ at least one other person in your company.

However, you can usually still join the pension scheme if you want to – your employer can't refuse.

In addition to this, if you have more than one job, but earn less than £10,000 a year in each of them, you'll need to actively request to opt in, as although your total income is more than the auto-enrolment threshold, you're assessed by each employer separately.

If you opt out of your workplace pension, your employer must automatically re-enrol you every three years, as long as you're still eligible. Your employer will write to you to let you know you've been auto-enrolled again, and you'll have one calendar month to opt out again if you choose to.

If you can afford to, then definitely consider it – especially if your employer will match your contribution, in which case it's essentially a pay rise.

However, weigh this up against any payments you're making into a private pension to determine how much you want to pay in and can afford.

No. Auto-enrolment is designed to get everyone who isn't already paying into a workplace pension scheme to do so.

What scheme you'll be signed up to is the decision of your employer, which means if you're already in a workplace pension scheme you could be in a different scheme from your colleagues who are being auto-enrolled (although usually it will be the same scheme).

If you have more than one job, you'll be auto-enrolled by all your employers if you meet the criteria.

If you have more than one job, but earn less than £10,000 a year in each of them, you'll need to actively request to opt in, as although your total income is more than the auto-enrolment threshold, you're assessed by each employer separately.

Auto-enrolment applies to those who are employed, but if you're self-employed it doesn't necessarily mean you'll be excluded, eg, 'personal service workers' can be auto-enrolled. But who can be classified as such a worker is a subject of debate.

Yet the self-employed can always start their own saving for retirement through a personal pension. They can also join NEST, the National Employment Savings Trust, a workplace pension scheme set up by the Government.

If you're under 40, there's another option open to you – see the Lifetime ISA question below for more.

Any pension contributions you and your employer make will be held with the pension provider – not your employer. If your employer goes bust, your pension fund will be ring-fenced, so your retirement savings won't disappear.

If your pension provider goes bust, you also have protection – see our pension need-to-knows for more.

Not at all – you can get both. Auto-enrolment is the equivalent of a pay rise – not something you'd throw away lightly. But Lifetime ISAs – available to those aged between 18 and 39 – allow you to save for retirement (accessing the cash at 60) with the benefit of a 25% state bonus – a £1 top-up for every £4 you save.

You can read more in our Lifetime ISAs guide.