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Auto enrolment

Most workers in the UK are going to be automatically enrolled into a workplace pension scheme by their employer. From the date they’re automatically enrolled they’ll have a month to choose not to join, or ‘opt out’. If they do nothing they’ll be enrolled in the scheme. They’ll make contributions to their retirement pot from their pay for as long as they’re employed or until they take their money out.

Workers and employers can both contribute into NEST to build a retirement pot that’s invested on behalf of the worker. Workers who earn over a certain amount are entitled to a minimum contribution into their pot when they’re paid.

Image to show age and contributions

Minimum pension contributions

Minimum contributions are based on what’s known as ‘qualifying earnings’. Qualifying earnings are a section of a worker's pay. For the 2017/18 tax year this is everything over £5,876 and up to £45,000. The qualifying earnings band is reviewed by the government each year.

Workers who earn at least as much as the lower threshold each year are entitled to a minimum contribution into their retirement pot.

The minimum contribution rate itself only applies to a worker’s qualifying earnings. So in the 2017/18 tax year, a worker’s minimum contribution will be 2 per cent of everything they earn over £5,876 but not of anything they earn over £45,000.

How minimum contributions are worked out

The minimum contribution is made up of money from a worker’s pay, money from their employer and tax relief from the government.

A graphic showing how minimum contributions are made up of money from a worker's pay, money from their employer and tax relief from the government

Employers can choose a more straightforward way of calculating their minimum contributions if they want to make things simpler. As long as the contribution is at least as much as the minimum, then employers will still be complying with their new duties.

The new employer duties are being introduced gradually. The minimum contribution has been introduced at 2 per cent of a worker's pay. This will rise gradually to 8 per cent. The dates for the increases to 5 per cent and 8 per cent are April 2018 and April 2019 (as illustrated above).

What employers need to do

Employers will have to set up a workplace pension scheme and automatically enrol many of their workers. They’ll have to pay contributions on behalf of their workers and have to make a contribution for many of their workers’ retirement pots.

Being automatically enrolled

Joining a pension scheme means putting a little bit aside from your pay every time you’re paid to use when you’re older. You’ll get money from the government and many people will get a contribution from their employer too.