Pensions

A workplace pension is provided by your employer when you join the company. A percentage of your pay is paid into your workplace pension automatically every payday. You can choose how much you pay in, but there is usually a minimum amount.

Did you know:

• UK employers are required by law to automatically enrol all eligible employees into a pension and pay into it on your behalf. This is on top of any money you pay in.
• If you don’t want to be a member of the pension, you can choose to opt out.
• You’ll normally receive tax relief on your contributions. 

*If you are a Scottish or Welsh taxpayer the tax relief you will be entitled to will be at the Scottish or Welsh Rate of income tax, which may differ from the rest of the UK.

We've based this example on automatic enrolment, where the minimum contribution is 3% from the employer, 4% from the employee and 1% in tax relief. This would be the minimum automatic enrolment contribution for someone with pensionable earnings of £24,000 each year. Many workplace pension customers may get tax relief in a different way. Tax rules can change.

There are two main types of workplace pension:

Defined contribution

This is the most common type of workplace pension.

Money paid in by you and your employer is invested by a pension company like us. How much you’ll get back will depend on:

• what’s paid in 
• how the investments have done 
• charges 
• how you decide to use your pension savings.

There is no guaranteed income or pension value attached to this type of pension.

Defined benefit 

This type of pension, sometimes called a 'final salary' pension, is a lot less common now. 

• It normally provides a guaranteed income for life (an annuity). This is based on how long you’ve worked for your employer and your earnings.
• If you don’t want to buy an annuity, you may be able to transfer to a defined contribution pension, which will give you more options. If your defined benefits are worth more than £30,000, you’ll need to speak to a financial adviser. They’ll normally charge you for any advice.
• You may not have to pay into a defined benefit pension.

A personal pension is a defined contribution pension that you, or your financial adviser, select.. You choose the pension company and how it’s invested and pay the contributions yourself. 

You normally get tax relief on your contributions. The money you’ll get from a personal pension in retirement will depend on:

• how much has been paid in
• how the investments have performed 
• charges
• how you decide to take your pension savings.

Other types of personal pension:

• stakeholder pensions have specific Government requirements, for example there’s a maximum charge of 1.5% in the first ten years and 1% after that. There’s a minimum contribution of £20.
• self-invested personal pensions (SIPPs) allow you to make your own investment decisions from a much broader range of investments.

Your pension might offer what is known as a lifestyling option. This automatically moves from higher-risk investments in the early years, when you can normally afford to take more risk, to lower-risk investments, as you approach your selected retirement date. 

With newer lifestyle options, as you move closer to your retirement date, the investments you’re in will depend on the retirement option you selected. This could be cashing in your pension savings, buying an annuity to provide a guaranteed income for life, or remaining invested to draw an income when you want.