If you’re employed, your employer will usually automatically enroll you into a workplace pension scheme, into which both they and you must contribute.
However, if you earn less than £10,000 a year, perhaps because you work part-time, you won’t be automatically enrolled into your workplace pension by your employer. This threshold figure applies to each job you do, not the total amount you earn each year.
So, if you do two or more part time jobs, you might earn more than £10,000 in a year, but if you earn less than £10,000 from each of your jobs, you wouldn’t qualify to be automatically enrolled into either of your employers’ workplace pension schemes.
The good news is that you can still join your employer’s pension scheme if you earn less than £10,000. Here, we explain how auto-enrolment rules work and how to go about joining your company scheme if you’re on a low salary.
Auto-enrolment rules explained
Under current rules, anyone aged 22 or over earning a minimum of £10,000 from a single job is eligible for auto-enrolment. You can choose to opt out if you want to, but it’s not usually recommended unless there are exceptional circumstances, for example, you need to pay back expensive debts first or because you have already started taking your pension and triggered the Money Purchase Annual Allowance which limits your annual pension contributions.
If you’ve been auto-enrolled into your employer’s workplace pension scheme, under current minimum contribution limits, you’ll be paying in 5% of your salary before tax (of which 1% is tax relief), whilst your employer will pay in 3%, bringing the total contribution to 8%. Your payslip should show any pension contributions that are deducted each month and if you’re not sure whether you’ve been auto-enrolled, check with your employer.
It’s important to note that these auto-enrollment pension contributions only have to be paid on ‘qualifying earnings’ of between £6,240 and £50,270 in the 2022/23 tax year. So for those earning low salaries, or indeed very high salaries, the effective contribution may be significantly lower than the headline percentage figures of 3% from the employer and 5% from your own contributions. If in doubt, speak to your employer to understand how your particular workplace pension scheme works.
Some employers will pay in more than the minimum contribution, and you can pay in extra if you want to. You are also able to make additional one off voluntary contributions into a workplace pension at any time and still receive any tax relief eligible to you.
What are my options if my earnings are below the auto-enrolment threshold?
If your earnings are below the £10,000 auto-enrolment threshold, you can still ask your employer if you can join your workplace pension scheme and they can’t refuse. However, bear in mind that if you earn less than £520 a month, or £120 a week, your employer doesn’t have to contribute to your pension, although you’ll still benefit from tax relief on your contributions. You can learn more about this in our article How pension tax relief works.
Even if your employer contributes into a workplace pension on your behalf, you are still able to take out a private pension on your own to supplement your pension – providing you stay within your annual contribution allowances. If you’re self-employed and therefore don’t have access to a workplace pension scheme, again you can take out a private pension to save for retirement. Find out more about the different types of pension that are available in our article Self-employed? Your pension options explained. You can read more about annual contribution allowances in our article Understanding your pension allowances.
If you’re not sure whether you’re saving enough, or you don’t fully understand where your money is being invested, you might want to speak to an independent financial adviser who can recommend the best course of action based on your individual circumstances.
You can find a local financial advisor on VouchedFor or Unbiased, or for more information, check out our guides on How to find the right financial advisor for you or How to get advice on your pension.
If you’re considering getting professional financial advice, Aviva is offering Rest Less members a free initial consultation with an expert to chat about your financial situation and goals. There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.