How pension auto-enrolment is improving future retirements

When did auto-enrolment start?

Legislation was initially introduced in October 2012 and has been updated from time to time to increase the number of people captured by the rules. According to the Office for National Statistics, since its introduction auto-enrolment has been directly responsible for an additional 10 million people putting something aside to boost their income in retirement. That’s about a fifth of the working population in the UK and an almost doubling in the number of people saving into a workplace pension scheme. 

What are the pension auto-enrolment rules?

Employees are required to automatically enrol employees if the following auto-enrolment criteria apply: 

• they ordinarily work in the UK.
• they are between the age of 18 and the State Pension Age.
• they earn more than £10,000 a year. 

There are exemptions for businesses with less than 10 employees and for those whose only employees were directors of the company. Anyone earning less than the auto-enrolment threshold of £10,000 is not signed up automatically but they can ask to join the scheme. If they ask, the company has to let them take part. 

Why are some people excluded from auto-enrolment pension schemes?

These limits have been set to make sure saving for the future does not compromise your ability to fund your current day-to-day spending.  When the regulations were first brought into force, membership was restricted to those between the age of 22 and the State Pension Age, but the auto-enrolment age was reduced to 18 in 2023 to make sure more people were given the chance to save. 

Can I opt out of auto enrolment?

You can ask to opt out of the company’s scheme, but if you do this you will miss out on the company’s 5% pension contribution and this might not be in your best long-term interests. And you will miss out on the tax relief. 

You can ask to leave the scheme at any time and rejoin later when you feel more comfortable with the payments. Your employer must automatically re-enrol you every three years anyway, so you can reconsider your decision then. 

Auto-enrolment could make a huge difference to the type of retirement you might be able to enjoy. Most employers offer funds with lower fees and charges than you could find if you wanted to invest in a personal account. Over time, this difference in fees can make a difference to your total returns. 

Why do I need to save into a pension scheme?

We are all having to prepare better for our retirements. Each year the Pensions and Lifetime Savings Association together with the University of Loughborough releases a report on the cost of living for those in retirement. The recent survey, highlighted that a basic retirement would cost someone £13,400. If you’re living together as a couple this is £21,600. Meanwhile the full New State Pension will provide an income of £11,973 in the 2025/26 tax year, increasing to £12,548 from 6th April. 

From these figures we can see that a full new state pension will barely cover your living costs if you live alone and will provide a couple with some change for special treats. And the more you want from retirement, the more it will cost. 

Household	Minimum lifestyle	Moderate lifestyle	Comfortable lifestyle
Single	£13,400	£31,700	£43,900
Couple	£21,600	£43,900	£60,000

Source: University of Loughborough and the Pensions and Lifetime Savings Association, January 2026. 

This is why it is important that we all think carefully about how we want to spend our retirement and how we will fund this lifestyle. 

The State Pension Age is currently 66, but rising to 67 between 2026 and 2028 on a phased basis, and to 68 by 2040. The average lifespan in 2025 for a 66-year old man is 85 and for a woman it is 88. If we take 20 years as a rough guide to the length of time the average person will spend in retirement, and the difference between what we need to spend and the full New State Pension, we can calculate the minimum we need to have saved up. These figures are only a guide based on the situation today and don’t consider increases in the prices of goods and services (inflation). 

Household	Minimum lifestyle	Moderate lifestyle	Comfortable lifestyle
Single	£28,540	£394,540	£638,540
Couple	No shortfall; this is achievable.	£399,080	£733,080

Source: Charles Stanley

The retirement benefits you receive from your pension plan depend on a number of factors. For example, the amount paid in and how the money is invested will affect the value of your plan when you decide to take your benefits. Because the values of your investments vary day by day, the exact amount can’t be predicted or guaranteed. In extreme cases you might get less than you paid in. 

Retirement investing tips

There are several principles that apply when investing for the future: 

• Starting as early as possible gives you as much time to reach your goals as possible. If you are aged 18 today you may be investing for 50 years or more, and you’ll benefit from many years of potential growth. And the power of compounding can mean that every year you earn returns on the previous years’ growth.
• Investing a small amount regularly can help you smooth out the ups and downs of investing. You might buy shares when they are expensive, and you might buy shares when they are good value. But by buying investments at a variety of prices over time you can be sure your total portfolio was bought at the “average” price.
• Investing tax efficiently means you get to keep more of the returns. Pension accounts are the most tax efficient way of investing. All the while your investments are held in the portfolio any returns are free from capital gains and income tax. There is also a great degree of freedom when it comes to withdrawing from your pension savings, including the option to take 25% of the total pot tax free. Including 25% of all that potential growth. Follow this link for more on how pension tax relief works.
• Making the most of tax relief to save as much as you can afford. If you’re joining a pension scheme or already part of one and think you can afford to put away a little more each month, speak to your employer about making extra contributions. Some companies will match them to a maximum amount which is a welcome boost.
• Making sure your investment portfolio maximises returns for your level of risk. When you join the scheme, you might be offered a range of funds to choose from. Think about how long you’re likely to be invested and how happy you are taking risks. Generally, the longer you stay invested, the more risk you can afford to take. Although that isn’t the same as being happy taking that risk. 

If you’d like to put away more for your retirement, consider opening a self-invested pension plan (SIPP). It’s a personal savings account where your investments can grow tax free, but you’ll have a wider range of investments to choose from. You can invest up to 100% of your earned income or £60,000 (whichever is the lower) each year and you can claim income tax relief on your contributions. 

Would you like to speak to someone about retirement income, or are you looking for wealth management support? Request a call back from one of our financial professionals who can help you find the service to suit your needs. 

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The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits which aren't guaranteed and can go down as well as up. The benefits of your plan could fall below the amount(s) paid in.