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Pension

1. Full time work 2. Part time work 3. Understanding payslips
4. National Insurance 5. P45 and P60 explained 6. Income tax
7. Tax codes - what are they? 8. Pension 9. Getting a job

8. What is a Pension?

A pension is a way to save for your retirement.  It aims to provide you with a source of income in later life.  There are two types of pension:

 

State Pension

When you reach state pension age and have stopped working, you are able to claim your pension.  You will receive the state pension, which is currently £125.95 per week, but this amount can change depending on your National Insurance record.  The only reason you could get a higher amount is if you:

  • Have over a certain amount of Additional State Pension
  • You delay/defer taking your State Pension

If you are working and the company offers you to pay into the pension scheme, it is worth looking into this.  A percentage will be deducted from your wages when you get paid.  The benefit to paying to this is when you reach your pension age and/or decide to retire you will have the State Pension (once at state pension age) and your Workplace Pension.

 

Workplace Pension

You will be automatically enrolled in to a workplace pension if you meet the criteria below, unless you choose to opt out. Companies usually add money into your pension scheme as well, see exceptions below (minimum of 2%, rising to 3% in April 2019). 

Within the Workplace pension there are two types of pensions:

  • Defined contribution pension scheme - how much is paid into the pension;
  • Defined benefit pension schemes - based on your salary and how long you have worked for your employer.  Also known as 'final salary' or 'career average' pension schemes

For example (defined contribution) each payday your pension pot will increase by:

  • You putting in £40
  • Your employer putting in £30
  • You will get £10 tax relief

This mean in total £80 will go into your pension pot when you get paid.


By law, all employers must provide a workplace pension scheme for their employees.  This is called Automatic Enrolment.  You are automatically enrolled into the scheme by your employer and make contributions if:

  • You are aged 22 and state pension age;
  • You earn at least £10,000 per year;
  • Work in the UK;
  • You are classed as a 'Worker'

If you do not reach these requirements, you can still join the workplace pension as your employer can not refuse.

However if you have a low income of:

  • £503 per month;
  • £116 per week;
  • £464 per 4 weeks

Then your employer doesn’t have to contribute to your workplace pension.

Normally, you are automatically enrolled onto the workplace pension scheme; if this has happened then your employer will write to you informing you of this.  They need to tell you:

  • The date you enrolled;
  • The type of pension scheme and who runs it;
  • How much they will contribute and how much you will pay in;
  • How to leave the scheme, if you wanted to;
  • How tax relief applies to you

 

What is in my pension total? 

Your pension provider will send you a statement every year which will tell you how much is in your pension pot.

There are 2 different types of pension arrangements:

  • Net Pay - the amount you see on your payslip is your contribution plus the tax relief
  • Relief at source - the amount you see on your payslip is only your contributions, not the tax relief.

You can check with your pension provider or employer which arrangement your workplace pension uses.  This is what you will see on your payslip.

 

What if I take leave? 

Paid leave

If you take paid leave, you and your employer continue to make the contributions.

Unpaid leave

If you take unpaid leave, you may still be able to make some contributions but you will need to check this with your employer or the pension scheme provider.

 

What happens if I leave my job? 

If you decide to leave the job, your workplace pension still belongs to you.  If you stop paying into the scheme, then the money will remain and you will get the pension when you reach the scheme's pension age.

If you get another job and they have their own workplace scheme, you can join this as well.  Sometimes, employers will move one workplace pension over so you continue to pay into this.  Others may start a new one and combine them together.

If you decide to leave the job within 2 years of starting, then you may be able to get back what you have paid in.  This does need to be checked with your employer or the pension scheme provider.

 

Opting out of the Workplace Pension 

If you want to leave the workplace pension then what you do depends on if you have automatically been enrolled or not.

If you have been automatically enrolled and decide within a month of being added to the scheme, you will get your money back that you have paid in.  If you choose to opt out after the month then you may not be able to get your money refunded back to you and this will stay in the pension until you retire.  You will need to contact your pension provider to opt out but your employer must tell you how to do this.

If you were not automatically enrolled then you will need to check with your employer on what to do.

 

Reducing payments 

You will need to check with your employer and pension provider about reducing your payments.  You may be able to do this for a short period of time.

 

Opting back in

If you wish to opt back into the scheme then you can do this by writing to your employer.  However, if you have opted in and then out within the past 12 months, they do not have to accept you.

 

Re-joining the scheme automatically

Every 3 years, your employer will automatically re-enrol you into the pension scheme.  If you have opted out previously then your employer will write to you when this happens.  Once you are re-enrolled, you can leave this scheme again.

 


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