Corporate and Personal pensions

About workplace pensions

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, and you get tax relief from the government.

The money is used to pay you an income for the rest of your life when you start getting the pension.

You can usually take some of your workplace pension as a tax-free lump sum when you retire.

If the amount of money you’ve saved is quite small, you may be able to take it all as a lump sum. 25% is tax free but you’ll have to pay Income Tax on the rest.

You can’t usually take the money out before you’re 55 at the earliest - unless you’re seriously ill.

‘Auto enrolment’

A new law means that every employer must automatically enrol workers into a workplace pension scheme if they:
  • are aged between 22 and State Pension age
  • earn more than £10,000 a year
  • work in the UK

This is called ‘automatic enrolment’.

You may not see any changes if you’re already in a workplace pension scheme. Your workplace pension scheme will usually carry on as normal.

But if your employer doesn’t make a contribution to your pension now, they will have to by law when they ‘automatically enrol’ every worker.

Types of workplace pensions

There are 2 main types of workplace pension. Your employer decides which type of scheme you are offered.

Defined contribution pension schemes

These are also known as ‘money purchase’ schemes.

The money is invested by a pension provider chosen by your employer. The amount you get when you retire usually depends on:

  • how much has been paid in
  • how long you’ve been paying in
  • how well the investment has done

The value can go up or down in the short term. But pensions usually grow more than savings accounts over the long term.

Some schemes gradually move your money into lower-risk investments as you get nearer to retirement age.

You may be able to ask for this if it doesn’t happen automatically - ask your pension provider for more details.

The pension provider usually takes a small percentage of your pension pot as a management fee. Check the documents your employer gives you, or ask them, if you want to know how much this will be.

Defined benefit pension schemes

These are also known as ‘final salary’ or ‘salary-related’ pensions. They promise to give you a certain amount each year when you retire. How much you get doesn’t depend on investments.

The amount you’ll get depends on your salary and on how long you’ve worked for your employer. The pension scheme administrator can give you more details.

How contributions work

Your pension pot builds up each payday with your employer’s contributions and tax relief. This is how it works if you’re in a defined contribution pension scheme.

If you’re not yet automatically enrolled into a workplace pension

Your employer decides the minimum and maximum amounts you and they can pay in. If you pay Income Tax, the government automatically adds tax relief to your contribution.

The effect on your tax credits, income-related benefits, or student loan repayments

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 this may not affect your tax credits 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