Workplace pension and auto-enrolment: where 5% of your payslip goes, what your employer must add, and whether opting out is a good idea

For many newcomers, the first reaction to the pension line in a payslip is "another deduction — how do I switch it off". It is worth pausing: a workplace pension is the rare arrangement where someone else's money must be paid into an account in your name. Opt out and you give up not just your own 5%, but the 3% your employer pays on top of your wages and the government's top-up. It is not a tax: the money sits with a pension provider in your name and survives every job change. It is also entirely separate from the State Pension — one does not replace the other.

Who gets enrolled automatically?

Every employer, from a corporation to a two-person café, must provide a pension scheme and automatically enrol anyone who meets four tests: classed as a worker (agency and hourly staff included), aged between 22 and State Pension age, earning at least £10,000 a year in that job, and ordinarily working in the UK. Visa status and citizenship are not on the list: auto-enrolment covers foreign workers exactly as it covers British ones.

Your employer must write to you: the date you were added, who runs the scheme, what you and they will pay, and how to leave. The only flexibility they have is to delay enrolment by up to 3 months, in writing — and if you ask to join during the delay, they cannot refuse.

How much goes in — and who pays what?

The legal minimum is 8% of "qualifying earnings" — in most schemes, everything you earn between £6,240 and £50,270 a year, counting not just salary but overtime, bonuses, commission, statutory sick pay and statutory maternity, paternity and adoption pay. Of that 8%, the employer must pay at least 3%. Schemes may be more generous than the minimum, never less.

On a £30,000 salary the sums look like this: qualifying earnings are £23,760, so about £158 a month goes into the pension. £59 of it comes from your employer on top of your pay; £99 counts as yours — but under the common relief-at-source arrangement roughly £20 of that is added by the government, so about £79 actually leaves your take-home pay.

What is the government top-up?

Tax relief: the government returns the income tax on your contributions into the pot. GOV.UK's own example: you put in £40, your employer £30, tax relief adds £10 — £80 lands in your pension. In relief-at-source schemes even people earning below the income-tax threshold get the 20% top-up. Some employers offer salary sacrifice (SMART) schemes: you formally give up part of your salary, the employer pays it straight into the pension, and both of you pay less National Insurance. A side effect worth knowing: pension contributions reduce your assessed income, which can increase entitlement to Universal Credit.

Earning under £10,000 — no pension for you?

You will not be enrolled automatically, but you have the right to opt in, and your employer cannot refuse. If you earn more than £520 a month (£120 a week), they must pay their contributions exactly as for anyone else; at £520 a month or less they do not have to contribute, but still must let you join. This matters for part-timers and people combining several jobs: the £10,000 trigger is measured per employer, not across all your work.

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Can you leave and get the money back?

You can opt out at any time via the provider — your employer must tell you how. A refund of what you have paid is only available if you opt out within one month of being enrolled; leave later and your contributions stay invested until retirement age — they do not vanish, but you cannot simply withdraw them. Every 3 years your employer must re-enrol everyone who left, with a fresh letter and a fresh one-month window. Know your rights: it is unlawful for an employer to pressure you into opting out, or to dismiss or disadvantage you for staying in. You can rejoin at any time by writing to your employer; they may refuse only if you opted in and then out within the last 12 months.

What if the company goes bust?

In a defined contribution scheme the money is held by the pension provider, not the employer, so the employer's insolvency does not touch it. If an FCA-authorised provider itself fails, the Financial Services Compensation Scheme (FSCS) applies. In defined benefit schemes the Pension Protection Fund steps in: 100% compensation for those past the scheme's pension age, 90% for those below it. A separate Fraud Compensation Fund covers fraud and theft.

Changed jobs — where are the old pots?

Each employer has its own scheme, so years in the UK leave you with several pots. They are never lost to you, but they are easy to forget. The government's Pension Tracing Service finds a scheme's contact details for free: online at gov.uk/find-pension-contact-details or by phone on 0800 731 0175 — all you need is the employer's or provider's name. There is no reason to pay a "pension finding company" for this. The one group auto-enrolment does not cover is the self-employed: a sole trader has no employer, so saving is on you — all the more reason not to lose what you built up in employment.

One last thing: employer contributions are part of your pay package, like holiday and sick pay. When comparing job offers, ask about the pension percentage as well as the salary — over decades, the gap between the minimum 3% and a generous 8–10% is worth tens of thousands of pounds. How the state part of your retirement income is uprated is covered in our piece on the triple lock.