Automatic pension enrollment starts

With life expectancy increasing, millions of people are not saving enough to have the income they are likely to need in retirement. Pension saving has fallen across all age groups, with less than one in three adults contributing to a pension, although its steepest fall is among those aged 22-29, falling from 43% in 1997 to 24% today.

To force people to start saving now, the Government has come up with a scheme that automatically enrolls those working in both the private and public sectors into a workplace pension. The scheme starts next week and you'll be automatically enrolled into a workplace pension if you:

• Are not already in a pension at work.
• Are aged 22 or over.
• Are under the state pension age, which is currently 65 for men and 61 and two months for women, although this is gradually rising to 65 by 2018.
• Earn more than £8,105 a year.

When you'll be automatically enrolled depends on the size of the company you work for.

• Large employers (with 250 or more workers), will have to start automatically enrolling their workers between 1 October 2012 and February 2014.
• Medium-sized employers (50 – 249 workers) between April 2014 and April 2015.
• Small employers (49 workers or less) between June 2015 and April 2017.
• New employers (established after April 2012) will have to start automatically enrolling their workers between May 2017 and February 2018.

Most people will be enrolled into what's known as a defined contribution scheme. This means that all the contributions paid into your pension are invested until you retire, and the amount of money you have when you retire depends on how much has been paid in and how well investments have performed. With a defined contribution workplace pension, both you and your employer will have to make contributions.

Your employer will have to contribute on anything you earn over £5,564 a year up to a maximum limit of £42,475, after which it's up to the employer to decide whether or not it still wants to contribute and if so how much – although these figures may change in future. You will also get a contribution from the Government in the form of tax relief. This means some of your money that would have gone to the Government as income tax goes into your workplace pension instead.

The minimum contributions for automatic enrollment are shown in the table above. While the scheme is compulsory for employers, companies have a choice of provider and don't need to use the government scheme called NEST (as a matter of fact they probably should not). Also, as an employee, while you'll automatically be enrolled into a workplace pension, you can opt out and re-join at a later date if you wish to do so. However, if you opt out at any point after one month in a scheme, payments already made may not be refunded and will remain in your pension scheme until you retire. Employers will also have to automatically enroll workers back into their pension scheme roughly every three years – although again, you can choose to opt out.

For more information, see the DWP.