What is a workplace pension?

A workplace pension is a way of saving for your retirement that's arranged by your employer. Usually both you and your employer have to pay into it under Auto Enrloment rules.

A workplace pension is a pension that’s arranged by your employer. Contributions are taken directly from your wages and paid into your pension. Usually, your employer also adds money to your workplace pension, and contributions from the government will be added in the form of tax relief.

How workplace pensions work

Most modern workplace pensions are defined contribution pensions. This means that the amount you have in your pension plan on retirement depends on how much you’ve paid into your pension and how your investments have performed over time.

When you start at a new company or when your employer sets up a new workplace pension scheme, you will usually receive information about the scheme and agree the percentage of your salary that will be paid into your workplace pension.

Your employer will then deduct your pension contributions directly from your wages before paying you. In most cases, your employer will also add money to your workplace pension, and your pension provider will add money from the government in the form of tax relief.

You can choose to set up a private pension as well as a workplace pension. One of the reasons for doing this is if you want to combine old pensions (including workplace pensions from previous employers), into a single new plan. PensionBee can help you do this and your employer can pay directly into your PensionBee plan.

Defined benefit pensions

You may have a defined benefit workplace pension if you’ve worked at a big company or in the public sector.

If you’ve got a defined benefit pension, the amount you receive on retirement is usually based on the number of years you’ve been a member of the scheme and your salary (either your salary at retirement or an average of your salary during your years working). You need to seek advice from an Independent Financial Adviser (IFA) if you’re thinking about moving a DB pension worth over £30,000.

Auto-enrolment into workplace pensions

Employers now have to automatically enrol most of their employees into a workplace pension scheme, and employers are also obliged to make a certain level of contributions. These will generally be defined contribution plans.

If you earn more than £10,000 a year and you’re aged between 22 and State Pension age, you will probably be automatically enrolled into your workplace pension scheme. If you want to opt out of the pension plan, you will need to tell your employer.

The minimum employee contribution is currently set at 3% of your ‘qualifying earnings’, while the minimum amount your employer has to pay is 2%. These contribution levels are set to rise to 5% and 3% respectively by 2019.

Workplace pension contributions: working example

Workplace pensions can be a particularly good way of saving because money is added by your employer and by HMRC in the form of tax relief.

The example on the Pensions Advisory Service website shows that if you earn £24,000 a year and pay £145.41 per year into your workplace pension (£12.12 per month) then the total amount of money paid into your pension could be around £363.52 a year, based on receiving the basic level of tax top ups (25%) and the minimum level of employer contributions (at the time of writing).

Cashing in your workplace pension

When you reach 55, you can do several things with the money in your workplace pensions, just like you can with any personal pensions. You can find out more about the options on our page about cashing in your pension.

PensionBee pensions

As you can see, it makes a lot of sense to have a workplace pension, as your employer will add contributions. But if you want to gather previous pensions (personal and/or workplace) into a single pension plan and manage it online, you could consider opening a new personal pension plan too.

PensionBee can help you do this - we just need a few simple details and we’ll get to work finding your old pensions.

You can combine your pensions into a PensionBee personal pension plan and then keep track of your retirement savings online. Your employer can also choose to pay into your PensionBee plan.

Last edited: 26-09-2018

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