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Pensions: auto-enrolment and saving enough for your retirement

If your business has qualifying employees, you will have to provide an auto-enrolment pensions scheme. We talk you through the basics of setting up your scheme, as well as helping you to ensure you’re saving enough for your own retirement.

In this article

It’s no surprise that many of us aren’t saving enough for our pensions. It’s hard to focus on tomorrow when there are demands on our wallet in the here and now. But the gap between what people need to retire comfortably and what we’re all saving has got so big that the government has stepped in with its workplace auto-enrolment pension regulations.

The regulations require businesses all over the UK – even if they have only one employee – to set up auto-enrolment pension schemes, if they don’t have pension provision already in place. As the name suggests, employees will be automatically enrolled into these schemes (although they do have the option to leave), making it easier for more of us to save something towards our retirement.

If you haven’t yet set up your auto-enrolment scheme, and you took on your first employee after 2012, see our article on how to get ready.

Most businesses will be affected, but there are particular instances where auto-enrolment duties do not apply, including:

  • if you operate as the sole director of a company with no other staff
  • if your company has a number of directors, none of whom has an employment contract
  • if your company has a number of directors, only one of whom has an employment contract.

If you’re in any doubt about whether or not you need to provide an auto-enrolment pension scheme – even if it’s only for yourself – check the Pensions Regulator website for more information.

State pension

Even if you’re not obliged to operate an auto-enrolment pension scheme, you still need to provide for your own retirement. Check the Which? guide to how pensions work for more information.

Many people rely on the state pension. That still exists for now, and can form the basis of your retirement savings. However, the UK population is ageing, putting pressure on the system. As a result, the age at which you can draw the state pension is rising, and it’s unlikely to provide you with enough income for more than the basics. Additional saving in a personal or workplace pension could make the difference between a comfortable retirement and one that’s a struggle financially.

How much to save into your pension plan

So, you’ve set up your auto-enrolment scheme – or you’re a part of a workplace pension. Job done, right? You can just kick back, watch the money mount up and put your feet up in 20, 30, 40 or 50 years’ time. Can’t you?

Well, it depends. If you’re at the start of your working life, it’s quite possible that saving a small amount into a workplace pension for 50 years may well be all you need. However, if you’re in your 30s or 40s and just starting to save into a pension now, the current government-mandated minimum of 1% from an employer and 1% from an employee isn’t going to give you much of a pension pot.

Which? asked 1,590 retired couples about their spending. The 2017 research showed that couples living a comfortable lifestyle with a few extras, such as holidays abroad, spend on average around £26,000 a year. This requires a pension pot of at least £210,000 to be taken as income drawdown on retirement. You’re unlikely to get that much from minimum contributions, unless you’re a high earner or have been saving for a very long time.

Workplace pensions are made up of a contribution from the employer, a contribution from the employee’s salary, and tax relief from the government on your qualifying earnings. The minimum-contribution levels are set to rise over the next few years – see below.


Employer pays:

Employee pays:

The government adds tax relief of:

Total contribution

Until 6 April 2018

1% of your qualifying earnings

0.8% of your qualifying earnings

0.2% of your qualifying earnings

2% of your qualifying earnings

From 6 April 2018 until 6 April 2019

2% of your qualifying earnings

2.4% of your qualifying earnings

0.6% of your qualifying earnings

5% of your qualifying earnings

From 6 April 2019 onwards

3% of your qualifying earnings

4% of your qualifying earnings

1% of your qualifying earnings

8% of your qualifying earnings


From April 2019 you will have a total contribution of 8% of your qualifying earnings going into your pension pot. You can use the workplace pension contribution calculator to find out exactly how much that will be. You can also calculate the amount you’re likely to receive in retirement.

Remember, it’s always possible to pay more than the minimum into your pension plan. If you monitor how much you’re saving and how much that should net you in retirement, you can regulate your saving levels accordingly. Ask your financial adviser for help or, if you’re a Which? Trusted trader, you can contact the Which? money helpline, staffed by financial experts who can help you with any queries about your pension.

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