Workplace pensions

Workplace pensions are a great way to save for your retirement.

What is a workplace pension?

Many employers provide a workplace pension for their staff. A workplace pension is provided by your employer as part of your employment rather than an individual standalone plan you choose yourself.

Workplace pensions can be a good option as most employers will also make a regular contribution to your pension.

What is Automatic Enrolment?

By 2018, all employers will be required by law to have set up and enrolled all eligible employees into a qualifying pension. Your employer will explain, in writing, exactly how automatic enrolment will affect you. In many cases, this will be done by letter, but some employers may use other methods, such as email.

You will be provided with the following information:

  • when you are being enrolled
  • who operates the pension you are being enrolled into
  • what type of pension it is
  • the level of contributions you and your employer will pay into the pension
  • how to opt out if you don’t want to join.

When you pay into a pension, your employer will also make contributions as well, which means that your pension has the chance to build up quicker than if you were saving on your own.

You will also receive tax relief on your contributions as shown below.

  • John pays £80 into his pension scheme each month
    £80
  • Add
  • His employer puts in £60
    £60
  • Plus
  • And he gets tax relief of £20
    £20
  • Equals
  • That means £160 is going into John's pension from his £80 contribution
    £160

We've based this example on automatic enrolment, where the minimum contribution from 2019 is 3% from the employer, 4% from the employee and 1% in tax relief. This would be the minimum automatic enrolment contribution for someone with pensionable earnings of £24,000 each year.

Pensions are a long-term investment. The retirement benefits you receive from your pension plan will depend on a number of factors including the value of your plan when you decide to take your benefits which isn't guaranteed, and can go down as well as up. The value of your plan could fall below the amount(s) paid in. The tax treatment of your pension depends on your individual circumstances. Your circumstances and tax rules may change.


Who is eligible for automatic enrolment?

An employee must work, or ordinarily work, in the UK and have a contract of employment (i.e. is an employee rather than a self-employed contractor) or be contracted to provide work and services personally (i.e. is not permitted to sub-contract their duties to a third party).


Eligible jobholders

These employees must:

  • not already be in a qualifying workplace pension
  • be at least 22 years old
  • have not yet reached State Pension age
  • earn more than a minimum amount a year known as the earnings trigger (£10,000 for tax year 2017/2018).

Non-eligible jobholders

Employees who are not eligible jobholders could be entitled to ask to join the qualifying workplace pension and have the employer contribute to it on their behalf if they:

  • are aged between 16 and 74
  • earn more than a minimum amount a year (£5,876 for tax year 2017/2018) but less than the earnings trigger for automatic enrolment (£10,000 for tax year 2017/2018)

Or

  • are aged between 16 and 21 or between State Pension age and 74
  • earn more than the earnings trigger (£10,000 for tax year 2017/2018).

Entitled workers

These are employees who:

  • earn less than £5,876 (for tax year 2017/2018)
  • are aged between 16 and 74.

'Entitled workers' have a right to join a workplace pension provided by the employer but the employer can use a different scheme from the one it is using to automatically enrol its eligible and non-eligible jobholders. The employer does not have to pay into the pension for these employees.


How much will you have to contribute?

Under automatic enrolment, there is a minimum total contribution that must be paid into your pension. The amount is set by the Government and is made up of your and your employer’s contributions, as well as tax relief on your contribution.

The table below outlines the minimum contribution required:


Applicable dates Your employer pays You pay The Government adds tax relief of Total contribution
Until 5 April 2018 1% 0.8% 0.2% 2%
From 6 April 2018 – 5 April 2019 2% 2.4% 0.6% 5%
From 6 April 2019 3% 4% 1% 8%

Opting out

If you are being automatically enrolled into your workplace pension, you’ll receive a communication from your employer that provides details about the pension scheme and contribution levels. It will also provide details of how to opt out, if you decide you don’t want to be a member. If you want to opt out, you will need to submit a form, but some pension schemes may allow for opting out online.

Your employer will tell you who you need to contact, but they are not permitted to handle the process for you, i.e. by giving you an opt-out form. This is to prevent employers from encouraging employees to opt out.

If you opt out within one month of joining, your employer will refund any money you have paid into the pension. If you opt out at a later date, the money will usually stay in the pension until you’re eligible to access your money.

If you opt out, your employer is required to automatically enrol you into their pension again every three years, assuming you remain eligible at that time.

Taking your money

Aged 55 or over? If you’ve understood the retirement basics, then explore your pension options.

Your pension options

Explore Retirement

Once you’ve got the basics, it’s time to take a look at some of the other stages of the retirement journey.

Retirement explained

Got a question?

If you need to ask us a question about pensions or retirement, then get in touch. There are lots of ways to contact us.

Contact us