Understanding the new workplace pension scheme

Before 2012, it was up to employees to decide if they wanted to join their employer's pension scheme. In 2012 however, a law was introduced that meant all employers will need to automatically enrol all eligible employees into a workplace pension scheme by 2018. The will make sure that many more people are saving towards their retirement needs.

The State Pension is intended to cover your basic needs during your retirement. The maximum basic State Pension payment for anyone who reached State Pension age before 6th April 2016 will give you £119.30 per week (pre-tax). With the New State Pension, which is for anyone reaching State Pension age after 6th April 2016, you’ll receive approximately £155.65 per week. Contributing to a workplace pension scheme will give you additional income on top of your State Pension when you retire.

 

What is a workplace pension?

Also know as ‘occupational’, ‘works’, ‘company’ or ‘work-based’ pension, a workplace pension is a way for you to save towards your retirement in a way that has been organised by your employer. It doesn’t matter if you are on a short-term contract, paid by an agency, or away on maternity/adoption/carer's leave, if you meet the following criteria you should be automatically enrolled into your employers pension scheme:

If you earn less that £10,000, you can still ask your employer to enroll you. Alternatively, you’re employer doesn’t have to automatically enroll you if you can provide a HMRC certificate showing that you have lifetime allowance protection.

For the vast majority of employees, staying in your workplace pension is a good idea, but for a few it might be sensible to opt out of this scheme for a while, which you can do by contacting your employers workplace pension provider. If you do opt out within the first month, your contributions will be refunded back to you, but if you opt out at a later date, your contributions will stay in your pension account until you retire. The down side of opting out if you don’t need to however, is that you’ll miss out on receiving employer and government tax-relief contributions.

 

How will it work?

The value of the contributions to your workplace pension will depend on the type of scheme that your employer has chosen. Your contribution will be automatically paid into your pension account directly from your salary. In most cases, your employer will make a payment into your pension and you’ll receive tax relief from the government. 

The law states that a there is a minimum percentage of your ‘qualifying earnings’ that must be paid towards into your workplace pension - your qualifying earnings is decided by your employer, but can be either what you earn annually before tax between £5,824 ad £42,385, or your entire salary before tax.  

 

  Percentage (%) of qualifying earnings
Current rate From April 2018 From April 2019
Minimum from you 0.8% rising to 2.4%  rising to 4%
Minimum from your employer 1% rising to 2% rising to 3%
Government contribution 0.2%  rising to 0.6% rising to 1%

 

You should receive an annual statement from your pension scheme provider to let you know how much is in your fund, and you can contact them any time to ask for an estimate on how much you’ll receive when you retire. The when, how and how much of accessing your pension fund will depends on your employers particular pension scheme rules, but normally you’ll be able to start receiving payments when you’re between 60 and 65 years.Occasionally these values could be different if your employer provides a defined contribution scheme or a defined benefit scheme.

 

How will it change my income?

Joining a workplace pension scheme means that your take-home income will be reduced, but it may also mean that

When it comes to your payslip, what you see will depend on what type of arrangement your employer has set up

 

Check your new State Pension with GOV.UK Verify

Checking your State Pension is one of the growing number of online government services available via GOV.UK Verify – to access these services, you’ll need to have your identity verified by a certified identity provider, such as CitizenSafe. Since identity verification is all that we do, you can be certain that you’ll get a straightforward, secure service.  

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