3.2 Occupational schemes: they work like a pay rise
All employers now must automatically enrol their eligible employees – currently those aged 22 years or older (up to the state pension age) and who earn at least £10,000 per annum – onto a workplace pension scheme. This may be the employer’s occupational scheme or an alternative (particularly in the case of smaller businesses).
If employees do not want to be enrolled onto a workplace pension scheme offered by their employers they have to take action to opt out. It is important to note that if you are outside the automatic enrolment criteria, you can still ask your employer to enrol you in the pension scheme. For more details, please see Joining a workplace pension. As a result of this arrangement, inertia results in employees becoming (and remaining) enrolled onto a pension scheme. Automatic enrolment has resulted in a huge increase in participation in pension schemes – this rose from 47% of employees in 2012 when automatic enrolment started to over 80% in 2024.
Automatic enrolment is an important initiative to get people to contribute to a pension plan, although some criticisms have been voiced about the scale of the fees levied on those enrolled onto schemes.
A big benefit of a workplace pension is that the employer has to contribute to the pension. Under auto enrolment, the employer must contribute at least 3% of your salary (within certain limits), which is a bit like a pay rise – though you will only see the money when you come to draw on your pension in later life. Employees must contribute a minimum of 5% of their salaries. Employees could also take part in the ‘salary sacrifice’ arrangement in which they give a portion of their salary to receive non-cash benefits or addition to pension benefits. For details and changes to salary sacrifice scheme, please see Salary sacrifice reform for pension contributions.
Additionally, as you saw in the earlier video, you get income tax relief on your contributions to your pension. This applies to defined benefit as well as defined contribution (or money purchase) schemes. Later in the session you’ll learn more about the tax rules that apply to pensions.
It is not very unusual for people to lose details of their pension schemes, especially if you have worked for many employers and/or have contributed to different pension schemes. You may find the following tools useful to locate your pensions: