Caree workplace pension - image of a hand putting money into a glass pension jar

What is the workplace pension and how does it affect me?

As always, money is a little tight, you are working as many hours as you possibly can and then a chunk of your salary gets taken off you every payday under the dubious title of ‘workplace pension scheme’.

Putting money away for later when you can barely get by now can be frustrating and it can seem counterproductive but there is some method to what appears to be madness.

The day to day pressures of life can often mean that when the decision is left to us, we avoid putting money away for our future in favour of affording to live now, this is understandable but the workplace pension scheme was put in place to help and encourage workers to start considering their retirement and how they will afford to live.

You have no doubt found that you have been automatically enrolled for a workplace pension or that you will be automatically enrolled, but do you understand what it means? Do you know what is being deducted from your wages and why?

Keep reading to find out everything you need know about the workplace pension and how it affects you

What is a workplace pension?

A workplace pension is a retirement fund that your employer arranges for you. They can be called different things such as workplace pensions, occupational pensions, works pensions, company pensions or work-based pensions.

Who is eligible for a workplace pension?

You will receive an automatic workplace pension if you are;

  • Classed as a worker. (i.e. if you have a contract of employment or if you receive money or a benefit in exchange for services but not as a sole trader or Director).
  •  Aged between 22 and State Pension age
  • Earning at least £10,000 per year. Calculate your annual salary here 
  • Working within the UK.

All of the above must apply to you for you to be eligible for workplace pension automatic enrolment.

Do I have to have a workplace pension?

All employers must provide a workplace pension, it is known as automatic enrolment. Your employer can delay your enrolment but only by up to 3 months.

You can opt-out of your workplace pension scheme after you have been enrolled. If you opt-out after the first month then any payments that were made remain in your pension pot until you retire, they will not be refunded.

You can opt out by contacting your pension provider. Your employer must tell you how to do this.

Tip: Do carefully consider your retirement arrangements before choosing to opt-out of your workplace pension scheme. Do you have an alternative plan in place to ensure you can afford to live when you stop work?

Because your employer contributes to your pension, you will have more in your retirement fund at the end then you personally contributed so it is worth thinking twice before you opt-out.

How does the workplace pension work?

A percentage of your pay is put into the pension scheme automatically each pay day, this is your contribution and your employer will also contribute to your pension pot for you.

How much is paid into my workplace pension?

The amount you and your employer pay towards the pension depends on the type of pension scheme you have.

The minimum total contribution into a workplace pension is 8%. This is made up of amounts from both yourself and your employer.

  • 5% is paid in by you from your wages.
  •  3% is paid in from your employer.

You can work out how much you and your employer will pay into your pension using the free Pension Calculator tool from the Money Advice Service.

How do I know which pension scheme I have?

Your employer should have provided you with all of the information when they enrolled you on the scheme. They are required to write to you when you are enrolled and whenever there is a change. You can ask your employer for this information at any time so contact your HR department or ask your manager if you are unsure of who to speak to.

Can my employer choose not to contribute to my workplace pension?

If you meet all of the criteria above, your employer has to contribute to your pension unless you choose to opt out of the scheme after your automatic enrolment.

Your employer does not have to contribute to your pension if you earn these amounts or less;

  • £512 per month
  •  £118 per week
  • £472 every 4 weeks

Does having a workplace pension mean I will take home less money?

Yes, your pension contribution is deducted straight from your pay (usually before tax is deducted) and so you will take home less overall.

This does however mean that depending on your circumstances you may be entitled to;

  • Tax Credits, or an increase in the Tax Credits you already receive.
  •  Income-related benefit or an increase in a benefit you already receive.
  • Reduced student loan repayments.

Is the money in my workplace pension safe?

Workplace pensions are usually run by pension providers not employers, so you will not lose your pension if your employer goes bust.

Your pension provider should be authorised by the Financial Conduct Authority, this means that if the pension provider goes bust you can claim compensation from the Financial Services Compensation Scheme (FSCS). 

How do I know how much is in my pension?

Your pension provider will send you a statement every year letting you know 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.

Do bear taxation in mind when you are calculating the value of your pension pot. The subject of tax is a complex topic and so it is worth doing your research so you know what to expect when the time comes. You can find out more about taxation on pensions here

Won’t the State Pension be enough?

The State Pension is intended as a foundation to build on, not as an entire pension pot. If you rely on the State Pension alone, you are very likely to see a fall in your income upon retirement.

You can check to see how much you might receive as a State Pension here.

When can I start taking my pension?

It may be different depending on your pension scheme so do check, but generally most schemes set the age as 55 and over.

The State Pension age maybe different from your workplace pension. Given that the State Pension age continues to rise each year and is set to be as high as 67 by 2028 it is important to check the age that you will be eligible to receive a State Pension and stay informed about the changes. You can find out what your estimated State Pension age will be here. 

What happens to my workplace pension if I leave my job?

Your workplace pension belongs to you. If you change jobs or stop working all together, it still belongs to you. The money that you and your employer have contributed so far will remain invested and you will get your pension when you reach the pension age specified by your scheme.

If you get a new job you may be able to keep making contributions to the same scheme or join the old and new pension scheme together, but you will need to check with your pension provider to see which option is available.

Do I still pay into my pension when I am on annual leave?

Yes, if you are on paid leave you will contribute to your pension based on the amount you actually earned, but your employer will contribute to your pension based on the earnings you would have received if you were not on leave.

If you are on unpaid leave, you can choose to contribute to your scheme, but it is not required. You employer is not required to pay into your scheme while you are on unpaid leave either.

What happens to my pension if I am on maternity leave?

Both you and your employer will continue to make contributions if you are getting paid during your maternity leave. If you are not getting paid, you employer still has to make their contributions for the first 26 weeks of your leave. They only have to continue after this if it is in your contract.

What can I do if I want to pay into a pension scheme but cannot afford to?

You may be able to reduce the amount you contribute to your pension for a short time. You will need to check with both your employer and your pension provider to see if you can do this and how long for.

While I have tried to cover everything, you may need to know about your workplace pension, you might find that you still have questions. In this instance you can find out more information using the following information;

  1. For specific questions about your pension scheme, talk to your pension provider or your employer.
  2. General questions about workplace pensions can be answered by the DWP Workplace Pension Information Line.
    Telephone: 0800 731 0372 | Monday to Friday, 8am to 6pm.
  3. You can get free impartial advice about your workplace pension options from;
    1. The Money Advice Service
    2. The Pensions Advisory Service
    3. Pension Wise 
  4. You can get impartial advice from an independent financial advisor, but you will probably have to pay for the advice

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