A workplace pension is a way of saving for your retirement that’s arranged by your employer.
Some workplace pensions are called ‘occupational’, ‘works’, ‘company’ or ‘work-based’ pensions.
How they work
A percentage of your pay is put into the pension scheme automatically every payday.
In most cases, your employer also adds money into the pension scheme for you. You may also get tax relief from the government.
By 2018 all employers must provide a workplace pension scheme. This is called ‘automatic enrolment’.
Your employer must automatically enrol you into a pension scheme and make contributions to your pension if all of the following apply:
- you’re classed as a ‘worker’
- you’re aged between 22 and State Pension age
- you earn at least £10,000 per year
- you usually (‘ordinarily’) work in the UK (read the detailed guidance if you’re not sure)
Use the staging date calculator to check when you could be enrolled. (Your employer can delay the date they enrol you in certain circumstances.) The calculator is for employers but also works for employees.
When your employer doesn’t have to automatically enrol you
Your employer usually doesn’t have to automatically enrol you if you don’t meet the previous criteria or if any of the following apply:
- you’ve already given notice to your employer that you’re leaving your job, or they’ve given you notice
- you have evidence of your lifetime allowance protection (for example, a certificate from HMRC)
- you’ve already taken a pension arranged through your employer
- you get a one-off payment from a workplace pension scheme that’s closed (a ‘winding up lump sum’), and then leave and rejoin the same job within 12 months of getting the payment
- more than 12 months before your staging date, you left (‘opted out’) of a pension arranged through your employer
- you’re from another EU member state and are in a EU cross-border pension scheme
- you’re in a limited liability partnership
- you’re a director without an employment contract and employ at least one other person in your company
You can usually still join their pension if you want to. Your employer can’t refuse.
If your income is low
Your employer doesn’t have to contribute to your pension if you earn less than:
- £486 per month
- £112 per week
- £448 per 4 weeks
What happens when you’re automatically enrolled
Your employer must write to you when you’ve been automatically enrolled into their workplace pension scheme. They must tell you:
- the date they added you to the pension scheme
- the type of pension scheme and who runs it
- how much they’ll contribute and how much you’ll have to pay in
- how to leave the scheme, if you want to
- how tax relief applies to you
Delaying your enrolment date
Your employer can delay the date they must enrol you into a pension scheme by up to 3 months.
In some cases they may be able to delay longer if they’ve chosen either:
- a ‘defined benefit’ pension
- a ‘hybrid’ pension (a mixture of defined benefit and defined contribution pensions) that allows you to take a defined benefit pension
Your employer must:
- tell you about the delay in writing
- let you join in the meantime if you ask to
What your employer can’t do
Your employer can’t:
- unfairly dismiss or discriminate against you for being in a workplace pension scheme
- encourage or force you to opt out
The amount you and your employer pay towards the pension depends on:
- what type of workplace pension scheme you’re in
- whether you’ve been automatically enrolled in a workplace pension or you’ve joined one voluntarily (‘opted in’)
You’re in a defined contribution pension scheme. Each payday:
- you put in £40
- your employer puts in £30
- you get £10 tax relief
A total of £80 goes into your pension.
Work out your contributions using the Money Advice Service’s contributions calculator. You can also use the government’s employer contribution calculator to work out how much your employer will pay in.
The government will usually add money to your workplace pension in the form of tax relief if both of the following apply:
- you pay Income Tax
- you pay into a personal pension or workplace pension
Even if you don’t pay Income Tax, you’ll still get an additional payment if your pension scheme uses ‘relief at source’ to add money to your pension pot.
If you’ve been automatically enrolled
You and your employer must pay a minimum percentage of your ‘qualifying earnings’ into your workplace pension scheme.
‘Qualifying earnings’ are calculated from either:
- the amount you earn before tax between £5,824 and £43,000 a year
- your entire salary or wages before tax
Your employer chooses how to work out your qualifying earnings.
|The minimum you pay||The minimum your employer pays||The government pays|
|0.8% of your ‘qualifying earnings’, rising over time to 4% by April 2019||1% of your ‘qualifying earnings’, rising over time to 3% by April 2019||0.2% of your ‘qualifying earnings’, rising over time to 1% by April 2019|
If your employer offers you a defined contribution pension the minimum amounts that must be paid into it could go up in April 2018 and April 2019, if parliament approves the changes. They might not increase if your employer is paying above the minimum amount already.
The minimum amounts could also be higher for you or your employer because of your pension scheme’s rules. They’re higher for most defined benefit schemes.
In other schemes, you and your employer have the option to pay in more than the legal minimum. You can pay in less – as long as your employer puts in enough to meet the legal minimum.
If you’ve voluntarily enrolled in a workplace pension
Your employer must contribute the minimum amount if you earn more than:
- £486 per month
- £112 per week
- £448 per 4 weeks
They don’t have to contribute anything if you earn less than this.
How your take-home pay changes
Joining a workplace pension scheme means that your take-home income will be reduced. But this may:
- mean you’re entitled to tax credits or an increase in the amount of tax credits you get (although you may not get this until the next tax year)
- mean you’re entitled to an income-related benefit or an increase in the amount of benefit you get
- reduce the amount of student loan repayments you need to make
Payments using salary sacrifice
You and your employer may agree to use ‘salary sacrifice’ (sometimes known as a ‘SMART’ scheme).
If you do this, you give up part of your salary and your employer pays this straight into your pension. In some cases, this will mean you and your employer pay less tax and National Insurance.
Ask your employer if they use salary sacrifice.
How your pension is protected depends on the type of scheme.
Defined contribution pension schemes
If your employer goes bust
Defined contribution pensions are usually run by pension providers, not employers. You won’t lose your pension pot if your employer goes bust.
If your pension provider goes bust
If the pension provider was authorised by the Financial Conduct Authority and can’t pay you, you can get compensation from the Financial Services Compensation Scheme (FSCS).
Some defined contribution schemes are run by a trust appointed by the employer. These are called ‘trust-based schemes’.
You’ll still get your pension if your employer goes out of business. But you might not get as much because the scheme’s running costs will be paid by members’ pension pots instead of the employer.
Defined benefit pension schemes
Your employer is responsible for making sure there’s enough money in a defined benefit pension to pay each member the promised amount.
Your employer can’t touch the money in your pension if they’re in financial trouble.
You’re usually protected by the Pension Protection Fund if your employer goes bust and can’t pay your pension.
The Pension Protection Fund usually pays:
- 100% compensation if you’ve reached the scheme’s pension age
- 90% compensation if you’re below the scheme’s pension age
Fraud, theft or bad management
If there’s a shortfall in your company’s pension fund because of fraud or theft, you may be eligible for compensation from the Fraud Compensation Fund.
Contact one of the following organisations if you want to make a complaint about the way your workplace pension scheme is run:
Your pension provider will send you a statement each year to tell you how much is in your pension pot. You can also ask them for an estimate of how much you’ll get when you start taking your pension pot.
What you see on your payslip
You don’t need to do anything to get tax relief at the basic rate on your pension contributions. There are 2 types of arrangements:
- net pay
- relief at source
Check with your employer or pension provider which arrangement your workplace pension uses. This determines what you’ll see on your payslip.
Your employer takes your contribution from your pay before it’s taxed. You only pay tax on what’s left. This means you get full tax relief, no matter if you pay tax at the basic, higher or additional rate.
The amount you’ll see on your payslip is your contribution plus the tax relief.
You won’t get tax relief if you don’t pay tax, for example because you earn less than the tax threshold.
‘Relief at source’
Your employer takes your pension contribution after taking tax and National Insurance from your pay. However much you earn, your pension provider then adds tax relief to your pension pot at the basic rate.
With ‘relief at source’, the amount you see on your payslip is only your contributions, not the tax relief.
You may be able to claim money back if you pay higher or additional rate Income Tax.
Tracing lost pensions
The Pension Tracing Service could help you find pensions you’ve paid into but lost track of.
Nominate someone to get your pension if you die
You may be able to nominate (choose) someone to get your pension if you die before reaching the scheme’s pension age. You can do this when you first join the pension or by writing to your provider.
Ask your pension provider if you can nominate someone and what they’d get if you die, for example regular payments or lump sums. Check your scheme’s rules about:
- who you can nominate – some payments can only go a dependant, for example your husband, wife, civil partner or child under 23
- whether anything can change what the person gets, for example when and how you start taking your pension pot, or the age you die
You can change your nomination at any time. It’s important to keep your nominee’s details up to date.
Sometimes the pension provider can pay the money to someone else, for example if the person you nominated can’t be found or has died.
Taking your pension
Most pension schemes set an age when you can take your pension, usually between 60 and 65. In some circumstances you can take your pension early. The earliest is usually 55.
Some companies offer to help you get money out of your pension before you’re 55. Taking your pension early in this way could mean you pay tax of up to 55%.
If the amount of money in your pension pot is quite small, you may be able to take it all as a lump sum. You can take 25% of it tax free, but you’ll pay Income Tax on the rest.
How you get money from your pension depends on the type of scheme you’re in.
Defined contribution pension schemes
You’ll need to decide how to take your money if you’re in a defined contribution pension scheme.
Defined benefit pension schemes
You may be able to take some money as a tax-free lump sum if you’re in a defined benefit pension scheme – check with your pension provider. You’ll get the rest as a guaranteed amount each year.
If you change jobs
Your workplace pension still belongs to you. If you don’t carry on paying into the scheme, the money will remain invested and you’ll get a pension when you reach the scheme’s pension age.
You can join another workplace scheme if you get a new job.
If you do, you may be able to:
- carry on making contributions to your old pension
- combine the old and new pension schemes
Ask your pension providers about your options.
If you move jobs but pay into an old pension, you may not get some of that pension’s benefits – check if they’re only available to current workers.
If you worked at your job for less than 2 years before leaving, you may be able to get a refund on what you’ve contributed. Check with your employer or the pension scheme provider.
During paid leave, you and your employer carry on making pension contributions.
The amount you contribute is based on your actual pay during this time, but your employer pays contributions based on the salary you would have received if you weren’t on leave.
Maternity and other parental leave
You and your employer will continue to make pension contributions if you’re getting paid during maternity leave.
If you’re not getting paid, your employer still has to make pension contributions in the first 26 weeks of your leave (‘Ordinary Maternity Leave’). They have to carry on making contributions afterwards if it’s in your contract. Check your employer’s maternity policy.
You may be able to make contributions if you want to – check with your employer or the pension scheme provider.
If you become self-employed or stop working
You may be able to carry on contributing to your workplace pension – ask the scheme provider.
You could use the National Employment Saving Trust (NEST) – a workplace pension scheme that working self-employed people or sole directors of limited companies can use.
You could set up a personal or stakeholder pension.
You can get help with your workplace pension options.
What you do if you want to leave a workplace pension depends on whether you’ve been ‘automatically enrolled’ in it or not.
If you haven’t been automatically enrolled
Check with your employer – they’ll tell you what to do.
If you’ve been automatically enrolled
Your employer will have sent you a letter telling you that you’ve been added to the scheme.
You can leave (called ‘opting out’) if you want to.
If you opt out within a month of your employer adding you to the scheme, you’ll get back any money you’ve already paid in.
You may not be able to get your payments refunded if you opt out later – they’ll usually stay in your pension until you retire.
You can opt out by contacting your pension provider. Your employer must tell you how to do this.
Reducing your payments
You may be able to reduce the amount you contribute to your workplace pension for a short time. Check with both your employer and your pension provider to see if you can do this and how long you can do it for.
Opting back in
You can do this at any time by writing to your employer. They don’t have to accept you back into their workplace scheme if you’ve opted in and then opted out in the past 12 months.
Rejoining the scheme automatically
Your employer will automatically re-enrol you in the scheme every 3 years (from the date you were first enrolled) if you’ve previously left the scheme. They’ll write to you when they do this.
You can leave the scheme again, but only once you’ve been re-enrolled.
When you don’t rejoin automatically
You won’t be automatically re-enrolled if you no longer qualify for the scheme.
Your employer doesn’t have to automatically re-enrol you if you chose to leave the scheme in the 12 months before the date you would have been re-enrolled.
For questions about the specific terms of your workplace pension scheme, talk to your pension provider or your employer.
You can get free, impartial information about your workplace pension options from:
- the Money Advice Service
- the Pensions Advisory Service
- Pension Wise if you’re in a defined contribution pension scheme
You can get impartial advice about workplace pensions from an independent financial adviser. You’ll usually have to pay for the advice.
For general questions on workplace pensions contact the DWP Workplace Pension Information Line.
DWP Workplace Pension Information Line
Telephone (English): 0345 600 1268
Telephone (Welsh): 0345 600 8187
Textphone: 0345 850 0363
Monday to Friday, 8am to 6pm
Find out about call charges
Only use the information line if you’re a worker – employers should contact The Pensions Regulator.
Problems with being ‘automatically enrolled’
Contact the The Pensions Regulator if you have concerns about the way your employer is dealing with automatic enrolment.
The Pensions Advisory Service may also be able to help you.
If you’re already paying into a personal pension
Check whether it’s better for you to:
- carry on with just your personal pension
- stop paying into your personal pension and join your workplace pension
- keep paying into both
If you’re saving large amounts in pensions
You may have to pay a tax charge if your total savings in workplace pensions and any other personal pension scheme go above your:
- lifetime allowance – £1 million
- annual allowance – usually the lowest out of £40,000 or 100% of your annual income
If you start taking your pension pot your annual allowance could drop to as low as £10,000.
If your pension scheme is closing
This can happen if your employer decides they don’t want to use a scheme anymore or they can no longer pay their contributions. What happens to the money you paid in depends on the pension scheme you’ve joined.
If you’ve been automatically enrolled, your employer can’t close a pension scheme without automatically enrolling you into another one.
If you’re getting a divorce
You and your spouse or partner will have to tell the court the value of each of your pension pots. You then have different options to work out what happens to your pension when you get a divorce.