A workplace pension is when a portion of your wage is put into a pension scheme, as organised by your employer. When you reach retirement age, you will be able to use this as a source of income, along with your national state pension.
In the past some employers provided workplace pensions and some did not. However, a new law states every employee must be automatically enrolled into a workplace pension scheme if they are aged between 22 and state pension age, earn over £9,440 and work in the UK. Employers with fewer than 30 employees have up to April 2017 to do this, while larger companies have a much shorter timescale. So if you are not already in a workplace pension scheme, this could change in the near future.
There are two types of workplace pension and it will be up to your employer to choose the scheme. A defined pension contribution scheme sees your money invested by a pension provider. The amount you eventually regain will depend upon how well the investment has done. In contrast, a defined benefit pension scheme gives you a specific sum each year during your retirement, with the amount depending upon your salary.
The amount you pay into your pension scheme will vary according to how much you earn and what type of pension you have. The minimum currently stands at 2% of your salary, although this will increase to 8% by 2018. However, you do not pay all of this by yourself, as your employer must also make a contribution. If you pay income tax, the government will also add some money in the form of tax relief. These payments should continue while you are on paid leave or maternity leave.
If you leave your employment, you can freeze your pension scheme and reclaim the money invested when you reach retirement age. This applies even if you begin another workplace pension in your new employment. Alternatively you can continue to pay into the old scheme or combine the new and old schemes.
Your pension is managed by a pension provider, so if your employer goes out of business, it will still be protected. Your employer is not allowed to use your pension fund. If some is lost due to fraud or theft, the Pension Protection Fund may be able to recover the money. On the other hand if the pension provider ceases trading, you may be able to obtain compensation from the Financial Services Compensation Scheme.
You can opt out of a workplace pension scheme if you would like, after which you can re-join at any time. You may also ask to reduce the amount you pay, although you must meet the minimum payments.
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