What is a workplace pension? How can I join this type of pension? If you are employed, you could opt in or be automatically adhered to a pension provided by your employer. Furthermore, you would then be able to earn money for your retirement. Then, your employer and the government may also contribute (also known as tax relief). Your Benefits will tell you everything you need to know about a workplace pension.
What is a workplace pension
A workplace pension is a type of pension that is organised by your employer. Then, this could help you save for retirement. There are different types of workplace pension. In fact, there are “work-based”, “company”, “works” and “occupational” pensions.
Typically, your employer will contribute towards covering your pension as well. Additionally, you could get tax relief for this. What this means is that you would receive money from the government.
How do I claim my workplace pension
Your employer needs to provide a workplace pension. In fact, they have to have such a scheme available for employees. This is also known as ‘automatic enrolment’.
However, your employer may not have to automatically enrol you. In fact, if one of the following applies to you, they do not have to, you:
- Are considered as a ‘director’, do not have an employment contract and have at least one person working in your company;
- Are part of a ‘limited liability partnership’;
- Live in a European Union member state, and are opted in an EU cross-border pension scheme;
- Were in a pension scheme organized by your employer, and ‘opted out‘ more than 12 months prior to your staging date;
- Receive a ‘winding up lump sum’ (one-off payment) from a closed workplace pension scheme, to then leave and take again the same job, no later than 12 months following receiving the lump sum;
- Already receive a pension which qualifies you for ‘automatic enrolment’, and said pension scheme is arranged by your employer;
- Have evidence (like a letter from Her Majesty’s Revenue and Customs) showing that you have a lifetime allowance protection;
- Already planned to leave your job and gave the appropriate notice to your employer, or they gave you notice that you will no longer be working.
In these cases, you are not automatically enrolled. However, you can still join the workplace pension. Additionally, your employer cannot keep you from opting in.
What if I am automatically enrolled to my workplace pension?
Your employer needs to provide certain things in writing when you have automatically opted into a workplace pension scheme. In fact, this includes the following:
- If the pension makes you eligible for tax relief;
- How to opt-out of the scheme;
- The number of contributions that they will make, as well as the amount that you will need to contribute;
- What kind of pension scheme it is, and who is in charge of it;
- The exact date on which you were added to the scheme.
You could be able to delay when you opt in to the pension if some things are true. In fact, this is if the scheme is a ‘hybrid‘ or a ‘defined benefit‘ pension.
What will I get with a workplace pension?
How much you and your employer will pay towards your pension depends on a couple of things. First, it depends on the type of pension that it is. Second, it depends on if you “opted in” the scheme or were automatically enrolled.
You could receive tax relief. What this means is that the government would make payments to your workplace pension. However, two things need to apply. More specifically, the following:
What if I was automatically enrolled?
You may have been automatically enrolled to your workplace pension. If that is the case, both your employer and yourself will have to make certain contributions to it. More specifically, a certain percentage of your income.
Typically, in pension schemes where you are automatically enrolled, contributions are made for total earnings that are between £6,240 and £50,270 yearly before tax. Additionally, there are a number of things that your earnings include. More specifically, the following:
- Statutory maternity pay, adoption pay and paternity pay;
- Overtime that you work;
- Commission and any bonuses;
- Statutory Sick Pay;
- Wages and salaries.
The minimum amounts of contributions indicated above can be higher. In fact, most defined benefit schemes have higher minimum requirements. Additionally, your employer can choose to contribute more than the minimum amount.
What about take-home pay change and salary sacrifice?
You may join a workplace pension. Then, the income that you take home will be decreased. However, you could receive other benefits and advantages. This includes you receiving tax credits, or being eligible to receive more tax credits. However, this would only apply in the following tax year.
You may also use the ‘SMART’ scheme, also known as ‘salary sacrifice’. Then, some of your salary will go directly into your workplace pension. If you decide to do this, both you and your employer will need to pay less National Insurance contributions and tax. However, not all employers use the salary sacrifice scheme.
How to protect my workplace pension
There are several ways that you can protect your workplace pension. How this can be done depends on the type of pension that it is. You may have a defined contributions pension scheme. Then, your employer may go bust. If this is the case, you will not lose your pension, as they are run by the pension provider.
However, your pension provider may go bust. Then, you could receive compensation from the Financial Services Compensation Scheme (FSCS). However, for this to be true, the provider needs to have been authorized by the Financial Conduct Authority.
You may have a pension scheme that is managed by a trust. Which trust is appointed is determined by the employer. This is also referred to as a “trust-based scheme“. Then, your employer may go out of business. However, you could still get your pension. However, you may get a lower amount.
You may be on a ‘trust-based scheme’. Additionally, your employer may go bust. Then, you could receive less pension. This is because the running costs of the pension would be made using the pension pots of the people inside the pension scheme.
What if I have a defined benefit pension scheme?
Your employer has a certain responsibility. More specifically, they need to make sure that everyone that adhered to this scheme is able to receive payments through this pension scheme.
Your employer may be in financial trouble. Then, they cannot access the money in your pension pot. Additionally, your employer may go bust. Then, typically, you will be protected by the Pension Protection Fund. In fact, this is if your employer is unable to pay your pension.
There are certain things that the Pension Protection Fund will pay. In fact, this includes the following:
- 90% compensation (this is if you are younger than State Pension age);
- 100% compensation (this is if you are State Pension age or older).
Lastly, your Workplace Pension scheme could be impacted by theft or fraud. Then, you could be able to receive payments from the Fraud Compensation Fund. Additionally, you may disagree with how your pension scheme is run. Then, you can make a complaint about it.
How to manage my workplace pension
You will be sent a statement yearly. In fact, this will tell you the amount that you have in your pension pot. Additionally, you can ask certain things to your provider. More specifically, how much you would be able to take out of your pension pot if you choose to withdraw some amounts.
You can check the type of pension that you have. To do this, you must contact your pension provider. Then, the type of pension you have determines how your payslip is arranged.
You may need to pay tax on money put in your pension pot. However, you will not have to pay tax for pension pots under a certain amount. More specifically, for the following amounts over the lifetime allowance:
|Tax rates for pension pots over the lifetime allowance in 2022
|Tax rate for pension savings over the lifetime allowance
|How you withdraw the money
|If you withdraw money from your pot as a lump sum
|If you withdraw money in any other way
What is net pay and relief at source?
Net pay means that payments are taken from you pay by your employer before tax. The tax that you pay is on the remaining income. Additionally, you also receive full tax relief. In fact, this is regardless on the tax rate that you pay.
Relief at source for workplace pension means that contributions are taken from your income. However, this is done after tax and National Insurance contributions are made. Furthermore, after this is done, your provider provides tax relief directly in your pension pot. This is done at the basic tax rate.
What else should I know?
You may get a master trust defined contribution schemes. You can join the scheme, but be careful of pension scams. Group personal pensions may improve your experience. The pension your employer provides may improve our service. Furthermore, the website work may help with a financial adviser.