Definition of auto-enrolment

From October 2012, the UK government is introducing the biggest shake-up of pensions in a generation when millions of people will be automatically enrolled into workplace pensions for the first time.

Employers automatically have to enrol all UK workers aged between 22 years old and state pension age who earn more than £8,105 a year. In practice, employers may also enrol employees who do not meet these criteria, to ensure equal treatment.

The time when you will be enrolled – or staging date – is generally dependant on the size of the organisation you work for. Employers with with more than 120,000 employees must introduce auto-enrolment by October 1, 2012. The staging dates vary, depending on size of organisation. The final deadline announced so far is July 1 2014, for companies with between 50-89 employees.

Staging dates have not yet been confirmed for companies with less than 50 employees, but it is expected that they will need to auto-enrol employees no later than 2018.

To clarify things, Fidelity has produced a worked example to show exactly how auto-enrolment would work for someone earning £2,000 per month.  For example, from October 2012 – 2017 the minimum monthly contribution would be:

- Employee pays £16

- Employer pays £20

- Tax relief from government: £4

- Total paid into the pension: £40 [1]

Q&A: How auto-enrolment will work