What is a workplace pension?
One of the most efficient ways to save for your retirement, a workplace pension is in addition to a statutory state pension. Pension contributions are deducted from your salary, with your employer also making contributions to a minimum required level.
Regardless of how old you are, you need to start saving as soon as possible, especially if your employer is contributing – it’s tax-efficient and essentially, comprises additional funds for your retirement. The sooner you start saving, the sooner you can sail around the world, or sell your arts and crafts at fairs – however you plan to spend your retirement!
You are eligible for a basic rate of tax relief on your pension payments – currently set at 20%.
Who is eligible for a workplace pension scheme?
Employees aged between 22 and statutory state pension age who earn at least £10,000 per year must legally be auto-enrolled into a pension scheme. The £10,000 limit is subject to annual review and as a result, may change.
Employees aged between 16 and 74 who earn less than £10,000 per year have the right to voluntarily join a workplace pension scheme, which is known as opting in.
Before you join a workplace pension scheme, find out:
- If you get automatic enrolment
- What type of pension is on offer
- How much your contributions will amount to
- How much your employer will contribute (if this is over the minimum level required)
- How the money you pay into the scheme will be invested
- If you will be able to join the scheme at a later date if you choose to opt out
Don’t be put off by taking a pay cut in contributing to your company’s pension scheme – it is a vital step. You get to put something aside for a rainy day and you are also getting free money from the government and your employer to add to your pot.
If you are part of a workplace pension scheme and you change jobs, you can:
- Transfer your funds to the workplace scheme in your new job
- Transfer your funds to a personal pension
- Leave your funds in the pension to claim when you retire
Benefits of a workplace pension scheme
While every employer is now legally obliged to provide a workplace pension scheme, offering a scheme that is appealing to employees can bring considerable business benefits. When you are young, contributing to a pension can sound dull and dreary, but as workers get older it could be a decider in taking a job offer. The earlier a person contributes to a pension the better. It’s in the employer’s best interests to positively sell the benefits as then the employees will place more value on the company in providing those benefits.