Auto Enrolment Q&As

When will this system start?

It will be introduced gradually over six years.

The first wave has begun, with the largest businesses – with more than 120,000 staff – starting first. As time goes on, smaller firms will start enrolling staff.

The Department for Work and Pensions (DWP) estimates that 380,000 workers will be signed up in October, a total of 420,000 will be enrolled by the end of November, and 600,000 will be in place by the end of the year.

Firms with fewer than 50 workers will not start enrolling their staff until June 2015 at the earliest. But even the smallest employer – such as a plumber employing a full-time assistant – will eventually be obliged by law to enrol staff.

How much will I save?

At first, an employee will only see a minimum of 0.8% of their earnings going to their workplace pension. Their employer will be obliged to add a contribution that is the equivalent of 1% of the worker’s earnings. Tax relief adds another 0.2%.

However, these amounts will increase to a minimum of a 4% contribution from the employee, 3% from the employer, and 1% in tax relief from October 2018.

This means the equivalent of 8% of a worker’s earnings (including overtime, but excluding any earnings over £42,275) will go into their pension pot.

That means that from October 2018, somebody earning £20,000 a year would see £96.24 going into their pension pot every month. For this, some £48.12 will be taken from their take-home pay.

They will not be able to get at the funds until the age of 55 at the earliest so, in the meantime, the money is invested. The pension firm, insurance company, or government-backed organisation that is running the scheme will give each worker a choice on how risky they want these investments to be.

There will be a default option. This generally starts very safely, tries to make a bigger return during a worker’s middle age, then plays safe again as he or she approaches retirement.

There will be a charge levied by the pension provider, which is taken automatically each year from the pot.

It is very difficult to predict what sort of pension somebody would have at the end of the process, owing to the impact of the success of investments, changes to people’s earnings and the age at which they decide to retire.

However, as a ballpark figure, a 30-year-old who earns £20,000 now, sees a 1% above inflation pay rise each year, makes the minimum contributions permitted, whose investments have a small but regular return and who retires at 70 may receive a pension each year of £2,100 at today’s prices.