Automatic Enrolment and Workplace Pension Contributions

Automatic enrolment into workplace pensions has been one of the most significant changes to retirement saving in recent years. Introduced to encourage more people to save for later life, the system ensures that most employees are automatically signed up to a pension scheme run by their employer. The big difference compared to traditional personal pensions is that it’s not just the employee contributing – employers and the government add money too, giving workers a much stronger start in building their retirement fund.

Who is included?

Employers have a legal duty to enrol certain staff into a qualifying workplace pension scheme. You’ll be automatically enrolled if you:

• Are aged between 22 and State Pension Age

• Earn more than £10,000 a year (the current minimum threshold)

• Work in the UK

• Are not already in a qualifying workplace pension scheme

  
  

Employees can choose to opt out if they don’t want to take part. However, the government wants to encourage consistent, long-term saving. That’s why every three years, employers must carry out automatic re-enrolment. This means that if you opted out before, you’ll be put back into the pension scheme unless you actively decide to opt out again. In some situations, such as when an employee becomes newly eligible, immediate re-enrolment may also apply.

How much is paid in?

The law sets a minimum contribution level for both employers and employees. Together, at least 8% of qualifying earnings must be paid into the pension. This is split as follows:

• 3% from your employer

• 4% from you, the employee

• 1% tax relief from the government (which tops up your contribution)

Qualifying earnings explained

Contributions aren’t based on your full salary – they’re worked out using your qualifying earnings. For the 2025–26 tax year, this means:

• The first £6,240 of your annual income is ignored (the lower earnings threshold).

• Contributions are only taken from income between £6,240 and £50,270 (the upper limit).

So, if you earn £20,000 per year, your qualifying earnings are:

£20,000 – £6,240 = £13,760

It’s this £13,760 that your contributions will be based on.

Example: How contributions add up...

Let’s take Sarah, who earns £20,000 a year. Her qualifying earnings are £13,760. Here’s how much goes into her pension pot each year:

• Employer contribution (3%): £412.80

• Employee contribution (4%): £550.40

• Government tax relief (1%): £137.60

That’s a total of £1,100.80 added to Sarah’s pension pot in just one year. And the more she earns, the higher the contributions.

If Sarah stays in her pension scheme for the next 20 years, and contributions remain at this level (ignoring pay rises or investment growth), she could build up at least £22,000 in contributions alone – before any investment returns are added. In reality, thanks to investment growth and potential pay increases, her pension savings are likely to be worth significantly more by the time she retires.

Why staying enrolled matters

Although employees can opt out, the combination of employer contributions, government tax relief, and long-term investment growth makes workplace pensions one of the most effective ways to save for retirement.

By staying enrolled, workers benefit from “free money” from both their employer and the government – something they would lose out on if they chose not to participate.