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Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

A reader wants to know why the sums don’t add up with retirement savings
Thursday 05 May 2022 Author: Tom Selby

I’m being automatically enrolled into a workplace pension scheme and was told this would be 8% of my salary. However, I’ve just done the sums and my contribution works out less than this – can this possibly be right? I also have a friend who hasn’t been auto-enrolled at all. Are we being shafted by our employer?


Tom Selby, AJ Bell Head of Retirement Policy says:

Under auto-enrolment rules, all employers, regardless of size, are required to enrol staff in a pension scheme and pay a minimum level of contributions.

The reason for the reforms was simple – millions of people weren’t saving for retirement. While lots of organisations had a pension scheme, this wasn’t a legal requirement. Even where there was a scheme, plenty of employees simply didn’t join.

Auto-enrolment was first introduced in 2012 for the UK’s largest employers, with medium and smaller employers brought in and contributions scaled up until 2019.


While I cannot rule out the possibility your employer isn’t playing by the rules, the answer is likely a lot simpler.

Under auto-enrolment legislation, employees are required to contribute a minimum of 4% and employers 3%, with a further 1% coming via basic-rate tax relief – taking the total to 8%. Employees have the option to opt out of the scheme if they want to, although they miss out on the employer contribution if they do.

However, the minimum requirement is 8% of ‘band earnings’ rather than 8% of total earnings. For 2022/23, the earnings that qualify for minimum auto-enrolment contributions are those between £6,240 (the lower earnings limit for National Insurance contributions) and £50,270 (the upper earnings limit).

Take, for example, someone earning £20,000 a year. If their 8% contribution was based on their total earnings, they would expect £1,600 in total to go into their pension during the 2022/23 tax year.

But if the contribution is based on band earnings, then it will be 8% of (£20,000 - £6,240), which is £1,100.80.


There are various legitimate reasons your friend might not have been auto-enrolled.

If they are under 22 years old or over state pension age (66) then they will not qualify for auto-enrolment, although they have the option to opt-in.

If they have earnings below £10,000 (the auto-enrolment earnings ‘trigger’) they also will not qualify for auto-enrolment, although again they have the option to opt-in if they want to.

Furthermore, employers have the option of not auto-enrolling new joiners for the first three months of their employment.

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