What is a Workplace Pension Scheme?

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Contents:

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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). 

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

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

• Earn more than £10,000 a 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 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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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%. And if your employer pays more than 3%, you need only pay the balance up to 8%. 

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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. 

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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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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%. 

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.'

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Yes. Your employer must automatically enrol you into a pension scheme and contribute to your pension if you earn more than £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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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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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 £20,000 a year and would like to increase her contributions to benefit from her employer's contribution matching arrangement. Currently, she contributes 3% (£600), and her employer contributes 5% (£1,000) to meet the minimum requirement of 8% (£1,600). 

If Anna decides to increase her contributions to 6% (£1,200), her employer will match it by increasing their contribution to 6% (£1,200) as well. This will increase Anna's annual pension contribution to £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 £40,000. You'll pay tax on your pension contribution if you go above your annual allowance.

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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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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: 

• Your National Insurance number, 
• The date you stopped working there, 
• The date you started work with the employer, and 
• 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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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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Credits

1. Gov.uk
2. Money Advice Service