Workplace Pensions

Workplace pensions, sometimes referred to as company pensions, are a way for employees to save for their retirement by contributing to a scheme constructed by their employer. They work by taking a percentage of income from each salary. Under new laws these schemes are automatically set up for all eligible employees.

Eligibility

Your employer must provide a workplace pension scheme and you will have to opt out if you do not wish to contribute. You are eligible if you are over the age of 22, work within the United Kingdom and earn in excess of £10,000 per year.

If you’re eligible, then you will be ‘automatically enrolled’ into your workplace pension.

There are some instances where your employer does not have to automatically enrol you, these include:

• if you’ve given notice that you’re leaving your job or your employer has given you notice
• if you’ve taken a pension, arranged by your employer, that meets the rules of automatic enrolment

You can typically still join your workplace pension if you want, your employer cannot refuse this request.

Your employer cannot encourage or force you to opt out of a workplace pension once you’re in and they cannot unfairly dismiss or discriminate against you for being in a workplace pension scheme.

Contributions

The pension itself has three contributors, yourself, your employer and the government. You are entitled to tax relief if you pay income tax but should you not, depending on the scheme itself, you may still be eligible for financial assistance.

The value of each payment from each source will depend on a number of factors, including:

• The design of the pension itself
• Salary
• Whether you are automatically enrolled or you have a separate pension scheme
• Tax brackets

Each payment is typically worked out on a percentage basis and will depend whether the scheme is workplace defined or standard. Most workplace defined pension schemes require higher contributions than standard structured workplace pensions.

You may pay more into the scheme than is recommended and, as long as your employer agrees to contribute the difference, less for others.

Accessibility

All pensions define the minimum age at which they can be accessed and are typically first made available between 60 and 65 years of age. Depending on the small print of the scheme, some may even make payments available at 55, but this will reduce the value of the payments you receive.

Your employer does not have to contribute to your pension if you earn the following, or less:

• £520 p/m
• £120 p/w
• £480 over 4 weeks

Pros and cons

The obvious drawback of contributing to a workplace pension is reduced income. This can be significant depending on the scheme your employer has put in place. What’s more, because your workplace designs and puts in the place the scheme, you have little or no influence over it.

For some people, they may have commitments such as a mortgage, credit card payments or debt payments that are a bigger priority than paying into a pension scheme. If this is the case, it might be best to stop your pension contributions until your finances are in a more secure place.

However, as previously mentioned, there are a number of ways in which you can access financial help, including tax breaks, income related benefits and even reductions on student loans if you have them, so most will not see a marked change in their income.

The main benefit of the workplace pension scheme is of course securing your financial future well into your retirement years in an affordable and sustainable way. Contributions to your pensions occur before your wages hit your bank so often you won’t even notice the deduction, until you look at your payslip that is. These monthly contributions towards your pension will assist you in retiring with security and flexibility.