What this guide covers
When you're 22 or over and earning £10,000+ a year, your employer must put you in a workplace pension. The minimum is 5% from you, 3% from them, 1% in tax relief — that's 8% of your "qualifying earnings" going into a pension that compounds for 40+ years. Opting out at 22 to "save the money for now" can cost you £100,000+ in retirement income.
Who gets auto-enrolled
UK law (the Pensions Act 2008, in force since 2012) says employers must enrol "eligible jobholders" automatically into a workplace pension scheme. The three conditions:
- Aged 22 or over, but under State Pension age
- Earning more than £10,000 a year from that employer
- Working in the UK
If you're 16-21, you can still ask to join — and your employer must let you in, with the same contributions. If you do, you get the same employer match. So if you start work at 18 in a graduate scheme: ask to join the pension immediately. Don't wait until 22.
The 5% + 3% rule, and "qualifying earnings"
The legal minimum is 8% of "qualifying earnings" going into the pension. That breaks down as:
- 5% from you (4% net, after tax relief brings it back to 5% gross)
- 3% from your employer
"Qualifying earnings" is the slice of your pay between £6,240 and £50,270 (2026/27 thresholds). Many good employers contribute on total salary, and some contribute much more than the 3% minimum.
| Employer | Their contribution | Your contribution | Total going in |
|---|---|---|---|
| Minimum legal | 3% | 5% | 8% of qualifying earnings |
| Typical larger firm | 5-6% | 5% | 10-11% |
| Public sector (NHS, teaching, civil service) | 14-23% | 5-12% | 20-30%+ |
| Top tech / finance / pharma | 10-15% | 5-10% | 15-25% |
The compound-growth cost of opting out
"I'll start the pension later" is the most expensive financial decision under-25s make. Compound growth over 40 years is brutally unforgiving.
Worked example. Salary £25,000. 8% total auto-enrolment contribution = £2,000/yr into the pot. Assume 5% real annual growth (after inflation).
| Start age | Years contributing | Total paid in | Pot at age 67 (5% growth) |
|---|---|---|---|
| 22 | 45 | £90,000 | ~£317,000 |
| 27 | 40 | £80,000 | ~£247,000 |
| 32 | 35 | £70,000 | ~£190,000 |
| 37 | 30 | £60,000 | ~£144,000 |
Opting out at 22 to "save the money" until 27 costs you ~£70,000 in retirement pot. That's not because you didn't pay in — it's because you missed 5 years of compounding and 5 years of employer match.
How tax relief makes it cheaper than it looks
The way pension tax relief works on auto-enrolment can look confusing on a payslip but the maths is generous.
Your 5% contribution comes out of your pre-tax pay. So if you earn £24,000 and put 5% (£1,200) in, your taxable income drops to £22,800. You save 20% Income Tax on the £1,200 = £240.
The £1,200 lands in your pension. Out of your net pay, it really cost you £960. That's a 25% boost just from tax relief, on top of the employer's 3% match.
Higher earners (40%+ tax) get even more. £1 net into a pension can be £1.66 in the pot for a 40% taxpayer.
What to actually do on your first payday
- Open your payslip. Find the "Pension" line. Confirm it says you're paying in.
- Ring HR or check your contract. Ask: what's the employer contribution and is there a "match" if I pay in more?
- If your employer offers a match (e.g. "we'll match up to 6%"), set your contribution to that maximum. That's extra free money you're leaving on the table otherwise.
- Open the pension provider's app/website. Pick where the money is invested. The "default" fund is usually fine for under-25s — but check it's a global equity fund and not a cash-heavy one.
- Save the login details somewhere safe.
National Curriculum links
- England — PSHE Association KS4 L19 (income, debt, financial products)
- England — Maths KS4 (percentages, compound growth)
- England — Citizenship KS4 (operation of the economy)
- Wales — Curriculum for Wales Progression Step 5 (HWB, Maths & Numeracy)
- Scotland — Curriculum for Excellence MNU 4-09a (financial education), HWB 4-21a
- NI — LLW KS4 Personal Finance
Full mapping in the curriculum map.
UK Tax Drag (2026). Pension auto-enrolment — the £1 your boss pays for every £1 you do. Ages 16–18 deep guide. Available at: https://kids.uktaxdrag.co.uk/ages-16-18-pension-auto-enrolment.html
Curriculum mapping: see UK Financial Education Curriculum Map (Version 1.0).