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What is a Workplace Pension Scheme?

Updated:
Aug 26, 2021
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Β· 5 min read
What is a Workplace Pension Scheme

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Contents:

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What is a Workplace Pension

A workplace pension is a way of saving for your retirement and is usually arranged by your employer. You won't be able to access the money saved in a workplace pension pot until you are at least 55 years old (increases to 57 in 2028).Β 


In most cases, you will be enrolled automatically into your employer's workplace pension scheme. This is called auto-enrolment.

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Auto Enrolment Eligibility

You are eligible for auto-enrolment into your employer's workplace pension scheme if you:


  • Earn more than Β£10,000 a year (from one job),
  • Are aged between 22 and the State Pension age, and
  • Work in the UK.Β 


If you're currently aged between 20 and 39, your State Pension age will likely be 68. You can double-check that number here.


Your employer does not have to automatically enrol you if you do not meet the criteria mentioned above. However, you can usually still request to join their pension scheme if you want to. Your employer cannot refuse.


If you are not eligible for workplace pensions, have a look at personal pensions or pensions for the self-employed.

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Workplace Pension Rules

Both you and your employer have to contribute a percentage of your salary to a workplace pension scheme.


The minimum your employer must contribute to your pension is 3% of your salary, and the minimum total contribution (you and your employer) must make is 8%.


So if your employer is putting in 3%, your minimum contribution must be 5%. If your employer pays more than 3%, you need only pay the balance up to 8%.Β 

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Workplace Pensions Calculator

Use the Money Advice Service's workplace pensions calculator to work out how much you and your employer will put in. The more you and your employer pay into your pension, the more your retirement income will be.Β 

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Contribution Matching

Some employers offer contribution matching to incentivise you to save more and help you build retirement savings faster. With matched contributions, your employer will agree to pay more into your pension pot if you agree to increase your contributions to the scheme too.

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Workplace Pension Tax Relief

The government will usually add money to your workplace pension in the form of tax relief (free money).

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You can think of tax relief as a refund of the tax you originally paid on your pension contribution at your usual rate of income tax - 20%, 40%, or 45%.Β 


Even if you do not pay income tax, you'll still claim tax relief if your pension scheme uses a contribution arrangement known as 'relief at source.'


Frequently Asked Questions

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1. Does my employer have to enrol me in a pension?

Yes. Your employer must automatically enrol you into a pension scheme and contribute to your pension if you earn more than Β£10,000 per year (from one job), are aged between 22 and the State Pension age, and work in the UK. If you're currently aged between 20 and 39, your State Pension age will likely be 68. You can double-check here.

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2. Should I join my employer's pension scheme?

If you don't join your employer's workplace pension scheme, you'll miss out on the free money your employer contributes to your pension. And if your employer offers a contribution matching arrangement, you could miss out on even more free money. Even if you have a private pension somewhere else, you should still consider joining your employer's pension scheme so that you can take advantage of employer contributions.

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3. Why do employers match pension contributions?

Employers match pension contributions to incentivise you to save more and to help you build retirement savings faster. With contribution matching, your employer will agree to pay more to your pension pot if you agree to increase your contributions to the scheme too.


Here's an example: Imagine that Anna earns Β£20,000 a year and would like to increase her contributions to benefit from her employer's contribution matching arrangement. Currently, she contributes 3% (Β£600), and her employer contributes 5% (Β£1,000) to meet the minimum requirement of 8% (Β£1,600).Β 


If Anna decides to increase her contributions to 6% (Β£1,200), her employer will match it by increasing their contribution to 6% (Β£1,200) as well. This will increase Anna's annual pension contribution to Β£2,400.


Your employer does not have to match your pension contributions, so not all employers offer contribution matching. Check with your employer to see if they match contributions and take advantage of it if you want to grow your retirement pot faster. While taking advantage of this kind of arrangement and other opportunities to grow your pension pot faster, remember that your pension allowance for the 2020/21 tax year is Β£40,000. You'll pay tax on your pension contribution if you go above your annual allowance.

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4. How do I opt out of a workplace pension?

To opt out of a workplace pension, you need to ask the people who run your employer's workplace pension scheme for an opt-out form. Then return the completed form to your employer, not to the people who run the scheme.


If you opt out within the first month of your employer adding you to the scheme, your payments will be refunded. After the first month, you can still opt out at any time, but any payments you've made will stay in your pension until your retirement.


You can still rejoin your employer's workplace pension scheme at a later date if you want to. But they do not have to accept you back into their workplace scheme if you've opted in and then opted out in the past 12 months.


Your employer is also required by law to re-enrol you back into the scheme approximately every three years, as long as you still meet the eligibility criteria.

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5. How do I track down all my pensions with multiple employers?

To track down all your pensions, you need to contact your pension providers, the government's Pension Tracing Service, or your former employers if it was a workplace pension.


If you're contacting your former employers, the Money Advice Service has created a template letter you can send to your former employers. The key details you'll need to provide to your employers include:Β 


  • Your National Insurance number,Β 
  • The date you stopped working there,Β 
  • The date you started work with the employer, andΒ 
  • The dates you joined and left the pension scheme.


This link to the Money Advice Service website has all the information you need.

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6. Can I cash in my pension at 35?

No. You usually can't take money out of your pension pot before you're 55 (increases to 57 in 2028), but there are some rare cases when you can, e.g., if you are too ill to work or if you have a severe illness, which means you're expected to live for less than a year.


In the case of the State Pension, the earliest you can get that is when you reach your State Pension age. If you're currently aged between 20 and 39, your State Pension age will likely be 68. If you retire before this age, you'll have to wait to claim your State Pension.


If you have questions, ask the community!

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You might also like πŸ€“

  1. Best Pension Providers
  2. Best Pension for Self-employed People
  3. Stakeholder Pension vs SIPP
  4. Best Stakeholder Pension Providers
  5. Introduction to Pensions
  6. Best Stocks and Shares ISA


Credits

  1. Gov.uk
  2. Money Advice Service


Best Stakeholder Pension Providers

Compare some of the best stakeholder pension providers below:

‍

You usually can't access the money in your pension pot until you are at least 55 years old (increases to 57 in 2028) when you can take 25% as a tax-free lump sum.

‍

Capital at risk. Other charges may apply.

‍

Aviva - Ready-made

Aviva's Logo
Product‍
Stakeholder Pension
Account Type
Ready-made
Minimum Contribution‍
Β£20 per month
Annual Fund Management Cost
‍
Capped at 1%

Aviva lets you start your Stakeholder Pension with as little as Β£20 a month. And you can change that amount or stop and start payments when you need to.

GO TO SITE

Standard Life - DIY & Ready-made

Standard Life
Product‍
Stakeholder Pension
Account Type
DIY & Ready-made
Minimum Contribution‍
Β£16
Annual Fund Management Cost
‍
Capped at 1%

Standard Life offers straightforward investment options. You can choose from two strategic lifestyle profiles, which invest your money in funds and moves them as you get closer to retirement. If you don't want to choose a fund, that's fine too. Standard Life will automatically invest your money into a Lifestyle Profile.

GO TO SITE

Best Pension Providers

Compare some of the best pension providers below.

‍

You usually can't access the money in your pension pot until you are at least 55 years old (increases to 57 in 2028) when you can take 25% as a tax-free lump sum.

‍

Capital at risk. Other charges apply.

‍

Interactive Investor - One free trade every month; Lots of research

Interactive Investor
Product‍
SIPP
Account Type
‍
DIY & Ready-made
Minimum Contribution‍
Β£0
Annual Platform Fee‍
Β Β£240 (Β£19.99 per month)

Interactive Investor has more than 40,000 investments to choose from, including UK and overseas shares, funds, investment trusts, and ETFs. You get a free trade every month, which you can use to buy or sell any investment. It also has several ready-made funds and expert ideas to make it easy to choose investments. Interactive Investor charges a flat fee of Β£19.99 (Platform + SIPP fee) per month, so you know exactly how much you will be paying each month.

Special offer: Open a SIPP and pay no SIPP admin fee for 6 months. Terms apply.

GO TO SITE

Hargreaves Lansdown - Lots of investment options, research and tips

Hargreaves Lansdown
Product‍
SIPP
Account Type
‍
DIY & Ready-made
Minimum Contribution‍
Β£100 lump sum or Β£25 per month
Annual Platform Fee‍
0.45% - 0% (Funds)
0.45% (Shares - max Β£200/year)

Hargreaves Lansdown has thousands of investments to choose from, including UK and overseas shares, funds, investment trusts, and ETFs. Choose your own investments with expert research and ideas to help you, or simply pick a ready-made portfolio. Manage via website, app or phone. Hargreaves Lansdown also offers Stocks and Shares ISA, Lifetime ISA, Junior ISA, and Fund and Share Account. These services are intended for investors happy at making their own decisions. Capital at risk. Other charges apply.

GO TO SITE

AJ Bell Youinvest - Mid-price range; Lots of investment options

AJ Bell Youinvest
Product‍
SIPP
Account Type
‍
DIY & Ready-made
Minimum Contribution‍
Β£1,000 lump-sum. No minimum for a regular payment
Annual Platform Fee‍
0.25% - 0% (Funds)
0.25% (Shares - max Β£10/month)

If you are confident about picking your investments, AJ Bell Youinvest has thousands of investments for you to choose from, including shares, funds, investment trusts, and ETFs. And you can manage them online or with its mobile app. If you need help choosing, it has four ready-made portfolios and other investment ideas. AJ Bell Youinvest does not offer advice. Capital at risk. Pension rules apply.

GO TO SITE

Moneyfarm - Mid-price range; Offers advice and ESG investments

Moneyfarm Logo
Product‍
SIPP
Account Type
Ready-made
Minimum Contribution‍
Β£500
Annual Platform Fee‍
0.75% - 0.35%

Moneyfarm is a UK robo advisor that provides you with a personalised investment plan based on your risk preferences. It has seven globally diversified risk-rated portfolios, including ethical investments. The team at Moneyfarm actively manages your investments, so you can be sure you've got a good mix of hard-working assets handpicked from around the world. You also benefit from free and personalised digital financial advice from Moneyfarm's investment consultants, and you can chat, phone, email, or meet your consultant in person. Tell Moneyfarm when you aim to retire, and it will manage your portfolio around your target retirement date - reducing your risk as the date approaches. Moneyfarm's products include Stocks and Shares ISA, General Investment Account, and Personal Pension.

GO TO SITE

Vanguard - Low cost, capped at Β£375 per year

Vanguard Investor'
Product‍
SIPP
Account Type
DIY & Ready-made
Minimum Contribution‍
Β£500 lump sum or Β£100 per month
Annual Platform Fee‍
0.15% (max Β£375/year)

Vanguard is a popular low-cost investment platform with over 70 funds. It gives you the flexibility to choose a ready-made portfolio or build your own. Vanguard's products include SIPP, Stocks and Shares ISA and Junior ISA.

GO TO SITE

Aviva - Stakeholder Pension - Ready-made

Aviva's Logo
Product‍
Stakeholder Pension
Account Type
Ready-made
Minimum Contribution‍
Β£20 per month
Annual Fund Management Cost
‍
Capped at 1%

Aviva lets you start your Stakeholder Pension with as little as Β£20 a month. And you can change that amount or stop and start payments when you need to.

GO TO SITE

Standard Life - Stakeholder Pension - DIY & Ready-made

Standard Life
Product‍
Stakeholder Pension
Account Type
DIY & Ready-made
Minimum Contribution‍
Β£16
Annual Fund Management Cost
‍
Capped at 1%

Standard Life offers straightforward investment options. You can choose from two strategic lifestyle profiles, which invest your money in funds and moves them as you get closer to retirement. If you don't want to choose a fund, that's fine too. Standard Life will automatically invest your money into a Lifestyle Profile.

GO TO SITE

Best Pension Providers for Self-employed People

Compare some of the best pension providers for self-employed people below:

‍

You usually can't access the money in your pension pot until you are at least 55 years old (increases to 57 in 2028) when you can take 25% as a tax-free lump sum.

‍

Capital at risk. Other charges apply.

‍

AJ Bell Youinvest - Mid-price range; Lots of investment options

AJ Bell Youinvest
Product‍
SIPP
Account Type
‍
DIY & Ready-made
Minimum Contribution‍
Β£1,000 lump-sum. No minimum for a regular payment
Annual Platform Fee‍
0.25% - 0% (Funds)
0.25% (Shares - max Β£10/month)

If you are confident about picking your investments, AJ Bell Youinvest has thousands of investments for you to choose from, including shares, funds, investment trusts, and ETFs. And you can manage them online or with its mobile app. If you need help choosing, it has four ready-made portfolios and other investment ideas. AJ Bell Youinvest does not offer advice. Capital at risk. Pension rules apply.

GO TO SITE

Hargreaves Lansdown - Lots of investment options, research and tips

Hargreaves Lansdown
Product‍
SIPP
Account Type
‍
DIY & Ready-made
Minimum Contribution‍
Β£100 lump sum or Β£25 per month
Annual Platform Fee‍
0.45% - 0% (Funds)
0.45% (Shares - max Β£200/year)

Hargreaves Lansdown has thousands of investments to choose from, including UK and overseas shares, funds, investment trusts, and ETFs. Choose your own investments with expert research and ideas to help you, or simply pick a ready-made portfolio. Manage via website, app or phone. Hargreaves Lansdown also offers Stocks and Shares ISA, Lifetime ISA, Junior ISA, and Fund and Share Account. These services are intended for investors happy at making their own decisions. Capital at risk. Other charges apply.

GO TO SITE

Interactive Investor - One free trade every month; Lots of research

Interactive Investor
Product‍
SIPP
Account Type
‍
DIY & Ready-made
Minimum Contribution‍
Β£0
Annual Platform Fee‍
Β Β£240 (Β£19.99 per month)

Interactive Investor has more than 40,000 investments to choose from, including UK and overseas shares, funds, investment trusts, and ETFs. You get a free trade every month, which you can use to buy or sell any investment. It also has several ready-made funds and expert ideas to make it easy to choose investments. Interactive Investor charges a flat fee of Β£19.99 (Platform + SIPP fee) per month, so you know exactly how much you will be paying each month.

Special offer: Open a SIPP and pay no SIPP admin fee for 6 months. Terms apply.

GO TO SITE

Moneyfarm - Mid-price range; Offers advice and ESG investments

Moneyfarm Logo
Product‍
SIPP
Account Type
Ready-made
Minimum Contribution‍
Β£500
Annual Platform Fee‍
0.75% - 0.35%

Moneyfarm is a UK robo advisor that provides you with a personalised investment plan based on your risk preferences. It has seven globally diversified risk-rated portfolios, including ethical investments. The team at Moneyfarm actively manages your investments, so you can be sure you've got a good mix of hard-working assets handpicked from around the world. You also benefit from free and personalised digital financial advice from Moneyfarm's investment consultants, and you can chat, phone, email, or meet your consultant in person. Tell Moneyfarm when you aim to retire, and it will manage your portfolio around your target retirement date - reducing your risk as the date approaches. Moneyfarm's products include Stocks and Shares ISA, General Investment Account, and Personal Pension.

GO TO SITE

Vanguard - Low cost, capped at Β£375 per year

Vanguard Investor'
Product‍
SIPP
Account Type
DIY & Ready-made
Minimum Contribution‍
Β£500 lump sum or Β£100 per month
Annual Platform Fee‍
0.15% (max Β£375/year)

Vanguard is a popular low-cost investment platform with over 70 funds. It gives you the flexibility to choose a ready-made portfolio or build your own. Vanguard's products include SIPP, Stocks and Shares ISA and Junior ISA.

GO TO SITE

Aviva - Stakeholder Pension - Ready-made

Aviva's Logo
Product‍
Stakeholder Pension
Account Type
Ready-made
Minimum Contribution‍
Β£20 per month
Annual Fund Management Cost
‍
Capped at 1%

Aviva lets you start your Stakeholder Pension with as little as Β£20 a month. And you can change that amount or stop and start payments when you need to.

GO TO SITE

Standard Life - Stakeholder Pension - DIY & Ready-made

Standard Life
Product‍
Stakeholder Pension
Account Type
DIY & Ready-made
Minimum Contribution‍
Β£16
Annual Fund Management Cost
‍
Capped at 1%

Standard Life offers straightforward investment options. You can choose from two strategic lifestyle profiles, which invest your money in funds and moves them as you get closer to retirement. If you don't want to choose a fund, that's fine too. Standard Life will automatically invest your money into a Lifestyle Profile.

GO TO SITE

Best SIPP Providers

Compare some of the best SIPP providers in the UK below.

‍

You usually can't access the money in your pension pot until you are at least 55 years old (increases to 57 in 2028), when you can take 25% as a tax-free lump sum.


Capital at risk. Other charges apply.

‍

Interactive Investor - One free trade every month; Lots of research

Interactive Investor
Product‍
SIPP
Account Type
‍
DIY & Ready-made
Minimum Contribution‍
Β£0
Annual Platform Fee‍
Β Β£240 (Β£19.99 per month)

Interactive Investor has more than 40,000 investments to choose from, including UK and overseas shares, funds, investment trusts, and ETFs. You get a free trade every month, which you can use to buy or sell any investment. It also has several ready-made funds and expert ideas to make it easy to choose investments. Interactive Investor charges a flat fee of Β£19.99 (Platform + SIPP fee) per month, so you know exactly how much you will be paying each month.

Special offer: Open a SIPP and pay no SIPP admin fee for 6 months. Terms apply.

GO TO SITE

AJ Bell Youinvest - Mid-price range; Lots of investment options

AJ Bell Youinvest
Product‍
SIPP
Account Type
‍
DIY & Ready-made
Minimum Contribution‍
Β£1,000 lump-sum. No minimum for a regular payment
Annual Platform Fee‍
0.25% - 0% (Funds)
0.25% (Shares - max Β£10/month)

If you are confident about picking your investments, AJ Bell Youinvest has thousands of investments for you to choose from, including shares, funds, investment trusts, and ETFs. And you can manage them online or with its mobile app. If you need help choosing, it has four ready-made portfolios and other investment ideas. AJ Bell Youinvest does not offer advice. Capital at risk. Pension rules apply.

GO TO SITE

Hargreaves Lansdown - Lots of investment options, research and tips

Hargreaves Lansdown
Product‍
SIPP
Account Type
‍
DIY & Ready-made
Minimum Contribution‍
Β£100 lump sum or Β£25 per month
Annual Platform Fee‍
0.45% - 0% (Funds)
0.45% (Shares - max Β£200/year)

Hargreaves Lansdown has thousands of investments to choose from, including UK and overseas shares, funds, investment trusts, and ETFs. Choose your own investments with expert research and ideas to help you, or simply pick a ready-made portfolio. Manage via website, app or phone. Hargreaves Lansdown also offers Stocks and Shares ISA, Lifetime ISA, Junior ISA, and Fund and Share Account. These services are intended for investors happy at making their own decisions. Capital at risk. Other charges apply.

GO TO SITE

Moneyfarm - Mid-price range; Offers advice and ESG investments

Moneyfarm Logo
Product‍
SIPP
Account Type
Ready-made
Minimum Contribution‍
Β£500
Annual Platform Fee‍
0.75% - 0.35%

Moneyfarm is a UK robo advisor that provides you with a personalised investment plan based on your risk preferences. It has seven globally diversified risk-rated portfolios, including ethical investments. The team at Moneyfarm actively manages your investments, so you can be sure you've got a good mix of hard-working assets handpicked from around the world. You also benefit from free and personalised digital financial advice from Moneyfarm's investment consultants, and you can chat, phone, email, or meet your consultant in person. Tell Moneyfarm when you aim to retire, and it will manage your portfolio around your target retirement date - reducing your risk as the date approaches. Moneyfarm's products include Stocks and Shares ISA, General Investment Account, and Personal Pension.

GO TO SITE

Vanguard - Low cost, capped at Β£375 per year

Vanguard Investor'
Product‍
SIPP
Account Type
DIY & Ready-made
Minimum Contribution‍
Β£500 lump sum or Β£100 per month
Annual Platform Fee‍
0.15% (max Β£375/year)

Vanguard is a popular low-cost investment platform with over 70 funds. It gives you the flexibility to choose a ready-made portfolio or build your own. Vanguard's products include SIPP, Stocks and Shares ISA and Junior ISA.

GO TO SITE
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