Workplace Pension UK – How does it work? How to Join? Am i Automatically Enrolled?

By | Last Updated: 14th September 2019 | This post may contain Affiliate Links

Are you looking for more information about the Workplace Pension? This section has been created to help member of the British public understand their financials and commitments in further detail.

There’s been lots of discussions around workplace pensions over the last couple of years, so there’s nothing wrong in finding out more information.

Firstly, a workplace pension is designed to help you save for your retirement. It’s arranged by your employer, who’ll typically appoint a ‘pension provider’ to oversee the scheme.

The pension works by putting a ‘percentage’ of your wage into the pension scheme. This will normally happen on every payday. In the majority of cases, your employer will also add money to pension scheme for you.

Typically, there’s two types of ‘workplace pension schemes’ in the UK, these are:

Defined Contribution – a pension pot based on how much is paid in

Defined Benefit – a pension pot based on your salary and how long you’ve worked for your employer

The two types differ from each other, let’s explore these in more detail:

A defined contribution pension scheme can either be a workplace pension arranged by your employer or a private pension arranged by you. Typically, the money which is paid in will be invested, normally in shares by the pension provider. From this your pension pot value can ‘increase’ or ‘decrease’, depending on how ‘well’ the investments are doing.

Once you reach retirement age, the pension pot value will depend on how much money was ‘paid in’, how well the investments have performed and how you decide to take the money. For example, as a ‘lump sum’, ‘regular payments’ and so on. You’ll usually get 25% of your pension pot tax free. However, in some cases, the pension provider usually takes a small percentage as a management fee. You’ll read to read all the documentation to see how much this could be.

A defined benefit pension is arranged by your employer, normally it doesn’t ‘depend’ on investments. Your pension will be calculated on numerous things, such as on your salary, how long you’ve worked for the employer and so on. The pension provider will ‘promise’ to give you a certain amount each year when you retire. You’ll usually get 25% tax free. You’ll get the rest as regular payments.

How to Join a Workplace Pension?

  • You’re classed as a ‘worker’ – There may be ‘different’ rules for full-time and part-time staff

  • You’re aged between 22 and State Pension age

  • You earn at least £10,000 per year

  • You usually work in the UK
  • Sometimes you may not get automatically enrolled into the company pension scheme, typically an employer doesn’t enroll you if:

    • 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

    • You’ve already taken a pension that meets the automatic enrolment rules and your employer arranged it

    • You get a one-off payment from a workplace pension scheme that’s closed (a ‘winding up lump sum’), and then leave and re-join 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

    Equally you should also bear in mind, your employer doesn’t have to ‘contribute’ to your pension if you earn the following amounts or less:

    • £503 per month
    • £116 per week
    • £464 per 4 weeks
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    How does Automatic Enrolment work?

    Generally, your employer should write to you, this is to inform you that you’ve been automatically enrolled into the workplace pension scheme. The letter should normally include the type of pension scheme it is and who ‘runs’ it, they will normally state the pensions provider name.

    They should also tell you the date you were added to the pension scheme, how much your employer will contribute (if applicable) and how much you have to pay. Equally you should be told how to leave the scheme, some employers will include step by step instructions. You should also be notified how tax relief applies to you and your situation.

    If you’ve been auto-enrolled and some of the above hasn’t applied to you, it’s a good idea to speak to your employer for further clarification.

    What if my Employer or Pension Provider goes bust?

    It’s sensible to think about how this may affect you. If your employer goes bust and you have a ‘defined contribution pension’ you’ll normally be OK, as these are run by independent pension providers rather than your employer.

    If you pension provider goes bust, you’ll need to see if they are regulated by the Financial Conduct Authority. If they are (most good ones will be) then you may be able to get compensation through the Financial Services Compensation Scheme , also known as the FSCS.

    If you have a ‘defined benefit pension’, your employer is accountable to pay each member the promised amount. In most cases you’ll normally be protected by the Pension Protection Fund if your employer goes bust and can’t pay your pension.

    Frequently Asked Questions

    What age can I take my workplace pension?
    In ‘most’ cases, you’ll usually between the ages of 60 and 65. However, this can vary, and you’ll need to read all the terms and conditions you received from your pension provider to make 100% sure. In some rare cases you may be able to take your pension earlier, this is not always applicable however. Normally the earliest age is around 55 years old.

    What if I change jobs?
    If you decide to change jobs, your workplace pension will still ‘belong’ to you. This means the money will be invested and you’ll receive the pension once you reach the scheme’s pension age. You can join another workplace scheme if you get a new job. In some cases, you may be able to ‘merge’ the old and new pension schemes together. This obviously varies on multiple factors, however some companies use the same pension provider, so it could be worth ‘looking’ into.

    What does Relief at Source mean?
    In basic terms, after you’ve paid your National Insurance and Tax, your employer will ‘take’ your pension contribution from your pay. Your pension provider will then ‘add’ tax relief to your pension pot at the basic rate, this applies to everybody, no matter how much you earn. Sometimes you may be able to claim money back if you’ve paid higher or additional rate Income Tax or you pay higher or top rate Income Tax in Scotland.

    Can my employer force me out of automatic enrolment?
    The answer to this is ‘no’. Your employer cannot unfairly dismiss or discriminate against you for being in a workplace pension scheme. In addition, they cannot encourage or force you to opt out.

    Can I delay automatic enrolment?
    Typically, it’s up to your employer whether to delay your inclusion. Your employer can ‘delay’ the date they must enrol you into a pension scheme by up to 3 months. In some rare cases they can delay for a longer period, however this must be a ‘defined benefit’ pension or a ‘hybrid pension’. If your employer decides to delay you entering the scheme, they must inform you in writing and let you join ‘in the meantime’ if you ask to be included.

    What if I’m on maternity or paid leave?
    This can ‘vary’ depending on your pension provider and your employer. However, in ‘most’ cases yourself and your employer will continue to make pension contributions if you’re getting paid while on maternity leave. If you’re not getting paid, your employer still has to make pension contributions in the first 26 weeks of your leave.

    If you’re on paid leave, you and your employer will continue to make pension contributions, however the ‘amount’ you contribute may vary depending on what you earn during this period. Typically, your employer will pay the amount which is based on your salary, if you weren’t on leave.

    I need help regarding my pension?
    You can get ‘free’ information and guidance from the Pensions Advisory Service or Pension Wise , if you’re in a defined contribution pension scheme. In some cases, you may be in a position to pay for an independent financial advisor, in most cases they can assess your situation in more detail.