When you pay into a workplace pension, your employer does too and the government lets you hold on to some of your tax to help you build a bigger pot. That’s free ‘extra’ money, meaning more saved towards a more comfortable retirement.
What is a pension?
A pension is a tax-efficient way of long-term saving.
The idea is to put some money aside now, to live off in later life, when you want to start working less or retire completely.
But there’s lots of different types of pension…
The People’s Pension is a workplace pension scheme. For most people this is basically a pot of money – you pay in a small percentage of their wages and your employer adds some more. You get tax relief on the money you save into your pension pot too.
Then, with pensions like The People’s Pension, the pot of money gets invested to grow over time.
Normally available anytime from someone’s 55th birthday (the government proposes to increase this to age 57 from 2028).
Other types of pension
Most of our members will also get a State Pension.
If you pay National Insurance contributions over the years, you’ll be able to claim weekly payments from the government at some point in your 60s. (The age you can claim your State Pension is gradually increasing, depending on when you were born.)
If you get the full amount, it’s currently £10,600.20 a year – which is unlikely to be enough to retire on, but it’s a good start.
You might also choose to have a personal pension.
Personal pensions are often similar to workplace pensions, but usually available directly to individuals rather than through the workplace. Like a stakeholder pension for instance, which allows flexible payments. Ideal if you’re self-employed or out of paid work.
Many employers previously offered stakeholder pensions. Some may have adjusted their pension schemes to meet the auto-enrolment regulations, while many employers have swapped to workplace solutions like The People’s Pension.
Defined contribution pension
The People’s Pension is also classed as a ‘defined contribution’ pension (as opposed to a ‘defined benefit’ pension).
It’s the type of pension where you and/or your employer add money into your pension pot. Your money is invested over time – so how much you end up with depends on how much you save, charges, and you how your investments perform.
Defined benefit pension
A defined benefit is a type of pension that employers offered regularly not so long ago – giving you a guaranteed income every year from your retirement.
How much you get is based on your salary and the number years you worked there. So it’s sometimes called a final salary scheme (FSS), or career average revalued earnings (CARE).
The good news is we’re living longer – the bad news is most employers can’t afford this type of pension anymore. If you’ve ever had one, make sure you keep track of it (and don’t transfer it to a defined contribution pension scheme without seeing if it’s really worth your while).
If you’ve got a workplace pension, you’ll probably see ‘ER pension’ on your payslip. That’s the money that your employer is contribution to your pension pot.
Similarly, ‘EE pension’ on your payslip is the money that you’re contributing to your pension pot from your wages.
Workplace pension law
Most of us are living longer and in many cases struggling to afford the lifestyle we want in retirement. To counter this retirement savings shortfall, the government passed legislation in 2008 (the Pensions Act 2008) making it a legal requirement for every employer in the UK to set up a workplace pension for employees who meet certain criteria, this is known as auto-enrolment.
What is automatic pension enrolment?
Put simply, auto-enrolment means employers must now automatically enrol employees, if they meet specific criteria, to their workplace pension scheme.
How does auto-enrolment work?
Before auto-enrolment, it was down to the employee to opt in to their employer’s pension scheme.
With auto-enrolment an employer sets up a workplace employee pension and their employees are automatically enrolled into it, although they can still choose to opt out.
Auto-enrolment contributions are made by the employee, the employer and the government. This money then builds up in a pension pot.
Changes in pension rules
Every now and then the government introduces new reforms to pensions which change, and often help to improve, the way they are run.
In October 2012, auto-enrolment was introduced to encourage people to save for their retirement and not just to rely on the State Pension.
This requires every employer who employs at least 1 person to:
- offer a qualifying workplace pension scheme to their workers;
- put certain staff into their chosen scheme and pay a minimum level of contribution.
- provide information to their other employees about the right to join the scheme.
2015: Pension freedoms & choice
In April 2015, changes came into effect giving people greater freedom and choice in the options available to them when accessing their pension savings.
Before April 2015, most people used their defined contribution pension savings to buy an annuity. Now, when people reach the minimum pension age (currently 55), they can also take their money in lump sums, regular or occasional income payments or as a combination of all three.
People can get free, impartial guidance from the government-backed service called Pension Wise.
2018 & 2019: Minimum contribution increases
The minimum amount that must be paid into an employee’s pension went up in two phases: 6 April 2018 and then again on 6 April 2019.
Who should be enrolled into a workplace pension?
Most employed people are automatically enrolled into a workplace pension, but not everyone. Employees need to:
- be aged between 22 years old and under State Pension age
- earn more than £10,000 a year (for the current tax year)
- work in the UK.
Don’t worry if you don’t meet these criteria. Your employer won’t automatically enrol you, but you can still join The People’s Pension. You should talk to your employer if you wish to join.
Every 3 years the government wants to put employees who have opted out, ceased active membership or reduced their contributions to below the minimum level, back into a pension scheme. It’s a process called re-enrolment.
Why are you being re-enrolled?
If you ask to leave your employer’s workplace pension you may be automatically re-enrolled at a later date. Every 3 years, your employer reaches their ‘re-enrolment date’. At that point, the government requires your employer to put you back into the pension scheme.
You’ll be re-enrolled if you:
- are aged between 22 years old and under State Pension age
- earn more than £10,000 a year (for the current tax year)
- ordinarily work in the UK
- opted out more than 12 months ago.
It’s all to help you save more for later life.
More information on who should and shouldn’t be re-enrolled can be found on The Pensions Regulator website.
Benefits of being re-enrolled
The great thing about being re-enrolled is that it’s not just you who pays in. Your employer and the government (through tax relief) contribute too. It’s extra ‘free’ money.
This money builds up in your pension pot and you can spend it when you retire, or any time after you reach 55 (the government proposes to increase this to age 57 from 2028).
You’ll find more about the benefits of having a workplace pension below.
What do you need to do?
Good news. You don’t need to do anything. Your employer will take care of everything and re-enrol you back into The People’s Pension.
If you want to, you can ask to stop making contributions. However, you can’t do this until you’ve been re-enrolled and received your joiner information.
What is the process?
You should receive a letter from your employer telling you that they’re re-enrolling you – so if you don’t hear anything, get in touch with them.
Once we receive your first contribution – this can take up to 6 weeks – we’ll send you joiner information containing all the information you need.
And if you think you might need further advice, check out our guidance and advice for members page that talks about the different sources of help and support available.
Benefits of a workplace pension
- Your workplace pension gives you your own pension that belongs to you – even if you leave your job in the future, it’s yours to keep.
- Each pay period when you pay into it, your employer does too and the government lets you hold on to some of your tax to help you build a bigger pot. That’s free ‘extra’ money, meaning more saved towards a more comfortable retirement.
- Your workplace pension pot is completely separate from the State Pension, and a good way to top up your retirement income.
- The return on your pension savings is likely to be better than from any savings in your bank account. So it’s wise to start saving now to give your money a better chance to grow!
Read more in Your member information.
Your pension savings
If you’ve been auto-enrolled in our workplace pension scheme, you don’t need to do anything to get your pension pot started as it starts automatically. But if you want to get involved in your pension, you can.
As a member you have your own pension pot and you and/or your employer will contribute to it regularly. Your own pension pot means it’s easy to keep track of how your pension is doing.
Choosing not to join a workplace pension
If you don’t want to be a member of a workplace pension scheme, like The People’s Pension, you don’t have to be. If you’re auto-enrolled, you can choose to opt out. You can re-join when it suits you, as long as you’re eligible.
Read more in Your member information.