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Most of us are living longer and in many cases struggling to afford the lifestyle we want in retirement.
To counter this retirement savings shortfall, the government passed legislation in 2008 (the Pensions Act 2008) making it a legal requirement for every employer in the UK to set up a workplace pension for employees who meet certain criteria, this is known as auto-enrolment.
Put simply, auto-enrolment means employers must now automatically enrol employees, if they meet specific criteria, to their workplace pension scheme.
Before auto-enrolment, it was down to the employee to opt in to their employer’s pension scheme.With auto-enrolment an employer sets up a workplace employee pension and their employees are automatically enrolled into it, although they can still choose to opt out.Auto-enrolment contributions are made by the employee, the employer and the government. This money then builds up in a pension pot.
You are required to automatically enrol your staff in the pension scheme if:
In April 2015, changes came into effect giving people greater freedom and choice in the options available to them when accessing their pension savings.
Before April 2015, most people used their defined contribution pension savings to buy an annuity.
Now, when people reach the minimum pension age (currently 55), they can also take their money in lump sums, regular or occasional income payments or as a combination of all three
The minimum amount that must be paid into an employee’s pension went up in two phases: 6 April 2018 and then again on 6 April 2019.
The minimum auto-enrolment contributions for the 2024/25 tax year are 8% total and 3% employer minimum. This means that the employee contribution is typically 5%.