What You Need To Know About Workplace Pensions

A workplace pension allows you to save money. It’s set up by your employer, who might also add to your pension contributions. There are two types of workplace pensions:

Defined contribution pensions
This type of pension is when both you and your employer contribute to the pension pot, which is usually managed by an external company. The pension provider will invest this money on your behalf.

The value of your pension pot is dependent on your contributions, how long you invest and how well the investments perform. When you become eligible to withdraw money, you can take out regular payments or ad hoc lump sums. Defined contribution pensions are the most commonly used workplace savings schemes in the UK.

Defined benefit pensions (or final salary pensions)
This type of pension is based on your salary and how long you’ve worked for your employer. Defined benefit pensions don’t depend on investment performance.

Instead, your pension provider will pay out a specified amount of money each year when you retire. These types of pension schemes are quite rare these days and are typically seen in public sector jobs.

With a workplace pension, a percentage of your salary is automatically deducted and paid into the scheme. In most cases, your employer also adds money to your pension pot. You might also get tax relief from the government.

All UK employers are legally required to offer eligible employees a workplace pension scheme. This is known as “automatic enrolment” or “auto-enrolment.”

• You’ll be eligible for auto-enrolment if:
• You’re over the age of 22
• You’re under State Pension age (currently 66 for both men and women)
• You earn more than £10,000 a year
• You’re not already in a workplace pension scheme
• You work in the UK

You can opt out of a workplace pension scheme at any time. All you’ll need to do is complete a form and return it to your employer. You’ll get the chance to opt back into the pension scheme every 3 years.

The government introduced auto-enrolment in 2012 to help as many people as possible save for retirement. That’s because the State Pension alone doesn’t provide enough income for people to live on.

How much is paid into a workplace pension?
As of April 2019, you’ll need to contribute a minimum of 8% into a workplace pension. This breaks down into:

• 5% of your take-home pay
• 3% from your employer’s contributions and tax relief from the government

It’s important to note that these amounts are only the minimum and you or your employer can contribute more to the scheme. In some schemes, your employer may contribute more than the minimum, which means you can pay less.

For example, if your employer pays 6%, you’ll only need to contribute 2% to hit the 8% threshold. However, it’s advisable to keep your contributions to 5% (or more if you can afford it) to maximise your pension savings. And make sure you’re on the right track for a comfortable retirement.

What is salary sacrifice?
Salary sacrifice allows you to exchange part of your salary for extra benefits from your employer, including additional pension payments. Your employer will pay this directly into your pension pot, in addition to their normal contribution.

Not all employers offer salary sacrifice, however, it’s always worth checking if they do to see if you can boost your pension savings.

When you join a workplace scheme, you’ll be given information about how to set up and access your online account via post. Once your account is set up, you can log in to check your pension.

• You’ll be able to see the following details:
• How much your pension is worth
• Your pension forecast
• Where your money is invested
• How your pension is performing
• How risky your pension investments are
• How much you’ll pay in fees
• Your annual pension statements

Be sure to check your pension regularly (ideally once a year). This helps ensure that your pension savings are on the right track to give you a comfortable retirement.

We’ve created a simple workplace pension checker to help you see if your retirement savings are on the right track.

You’ll just need to select your pension fund from our extensive list. Then we’ll show you:

• Your pension’s growth over time
• How your pension’s performance compares to the industry average
• How much your pension be worth by the time you retire

Remember – investing is a marathon, not a sprint. So, try not to panic if your pension. performance dips in the short term.

You can start withdrawing money from a workplace pension when you turn 55 years old. This will increase to 57 from April 2028.

You can only withdraw your pension earlier than this if you have severe health problems or if you have a high-risk job such as firefighting or working in the military.

Yes, you can save into a workplace pension and a self-invested personal pension (SIPP) at the same time.

Generally speaking, workplace pensions tend to offer fewer investment choices since they’re managed by your employer or the pension provider.

SIPPs offer more autonomy over how you invest your retirement income, giving you more control when it comes to financial planning. However, they do require a more hands-on approach and you’ll need to set aside time to monitor and manage your account effectively.

If you’re thinking about opening a personal pension, check out our round up of the best SIPP providers to help you get started.

If you’ve had multiple employers in the past, you may have a few pension pots dotted around. Pension consolidation is when you combine some or all of your pensions into one pot.

To do this, you’ll just have to transfer your pension savings to a chosen provider.

Whether you should combine your pensions depends on your personal circumstances and any benefits attached to your scheme.

Some of the advantages of pension consolidation include:

• Simplicity: having your pensions in one place makes them easier to monitor and manage.
• Lower charges: each pension has its own set of fees, so you could save by combining them into one place.
• Investment options: combining your pensions could increase the value of your overall pot and give you access to more investment funds.
• Financial planning: you can get a better idea of whether your total pension savings are on the right track if they’re all in one place.

However, when it comes to combining your pensions, there are some risks to be aware of:

• Losing benefits: some pensions (like defined benefit pensions) come with guaranteed income or tax-free cash, which you could lose by transferring to a new provider.
• Exit fees: certain pension schemes charge fees for transferring your funds, which could eat into your retirement savings.
• Lose employer contributions: if you consolidate a current workplace pension, you could lose your employer’s contributions to your pot.

Remember, you can get the best of both worlds and try a partial pension consolidation. This allows you to combine the pension savings that would be better off in one account. And keep higher-value pensions separate to retain any benefit you get from your employer.

If you’ve lost touch with an old workplace pension, you’re not alone. In fact, there’s around £31bn lying in lost, inactive or unclaimed pensions in the UK.

You can track down an old or lost pension with the following steps:

• List all of the places you’ve worked: make a note of the dates you worked at each company.
• Find the pension providers’ names: check old paperwork, contact your employers or use an online service.
• Contact the providers: complete any forms and provide information to help them match you with your pension.

We’ve tried and tested all of the pension tracing services out there and recommend Gretel. It’s a free service that helps match you with old pensions with minimal admin.

Workplace pensions are important for helping you save enough money for a comfortable retirement. That’s because the State Pension, which is retirement income from the government, won’t be enough to cover the basics.

Estimates from Retirement Living Standards show that a single-person household needs at least £13,400 a year to cover essentials in retirement, such as housing costs, groceries and transport.

The new full State Pension rate is currently £230.25 per week, which works out to £11,973 per year. This leaves a shortfall of £1,427.

Saving into a workplace pension scheme can help to boost your retirement income so that you can afford your desired lifestyle when you hit retirement.

If you’d like to know how much your pension could be worth by the time you retire, use our pension calculator.

Opting out of your workplace pension shouldn’t be taken lightly. Starting your retirement savings journey as early as possible ensures that you’re able to benefit from compounding over time and save enough for a comfortable retirement.

That being said, with the significant rise in the cost of living over the past few years, it’s completely understandable why you might need to free up extra cash for present-day expenses.

If after rigorous budgeting, you find that opting out of your pension is the best way to balance your finances, only use this as a short-term strategy. And make a plan to re-enroll in your scheme as soon as possible to ensure your retirement savings are on the right track.

Workplace pension schemes in the UK must be regulated and follow strict rules set out by The Pensions Regulator (TPR) and Financial Conduct Authority (FCA) to protect your fund.

The levels of protection available depend on the type of pension you have:

Defined contribution pension protection:
Defined contribution pensions are managed by a separate pension provider rather than your employer. So if your employer goes out of business, your pension is still safe. The pension provider will continue to manage your retirement fund unless you decide to transfer it to a new pension provider.

If your pension provider goes bust, you can get your money back through the Financial Services Compensation Scheme (FSCS). Under the FSCS, you can claim:

• 100% of your pension money
• Up to £85,000 if you have a SIPP

You can use the FSCS’s tool to check what type of protection your pension has.

Defined benefit pension protection:
If your defined benefit pension provider or employer goes out of business, the Pension Protection Fund will intervene to find a new company to take over the pension.

In some cases, there might not be enough money in the pension scheme for another company to run it. If that happens, the Pension Protection Fund will pay out compensation instead. Employees will get either 90% or 100% of what their original pension provider promised to pay out.

Pension scams have a devastating impact on victims and could leave a significant shortfall in pension savings. There were 559 reports of pension fraud totalling £17,750,635 in 2023, according to Action Fraud. That means the average victim lost a whopping £46,959 from their retirement pot.

Staying vigilant can help you avoid being targeted by criminals. Some key steps to help protect your pensions include:

• Ignore cold calls or messages – don’t answer calls, texts or emails from contacts you don’t know.
• Ignore dodgy links – don’t click links, attachments or pop ups on emails, texts or social media that you don’t recognise.
• Never give out personal details – never hand over usernames, passwords or any personal information that could help someone access your account.
• Use strong passwords – keep your accounts secure with a strong password and extra security like two-factor authentication (if it’s available).
• Avoid using public WIFI – only carry out financial transactions on secure private WIFI networks.

If you think you’ve been affected by a scam, it’s important to act quickly. Contact your pension provider and bank immediately to report the incident. You should also report the scam to Action Fraud by calling 0300 123 2040 or through the online reporting form.