What is a workplace pension or occupational scheme?

A workplace pension is a pension provided by your employer, It is also called an occupational pension or a company pension scheme, the terms are interchangeable. 

Essentially, it’s a way of saving for your retirement arranged by your employer.

How they work

A percentage of your pay is automatically put in the scheme from your salary, you may also get tax relief from the government and your employer also adds money into the scheme. 

There are 2 types of workplace pensions, a defined contribution scheme or a defined benefit scheme. 

Workplace schemes or occupational schemes are run by appointed trustees and are regulated by the HMRC. 

The term company pension scheme refers to pension schemes run by large financial institutions such as banks or insurance companies. These are known as group personal pension schemes (GPP). These differ from workplace or occupational schemes as they are regulated by the FCA.

Does my employer have to provide a workplace pension?

Since 2010, all employers by law must provide a workplace pension or equivalent scheme. if you’re eligible, this is called auto-enrolment. 

Your employer must auto-enrol you if you meet the following criteria:

• You have been working for a minimum of 6 months
• You’re between 22 and the state pension age
• Not already in a qualifying scheme such as a GPP scheme
• Earn more than £10,000 a year

 

How much do I have to contribute to a workplace pension?

The legal minimum contribution is 8% of your qualifying earnings.

Your employer would pay 3% of this, whilst you would pay 4% of your pay. The government would contribute 1% through tax relief. 

Qualifying earnings for the tax year 2023/24 is anything between between £6,240 and £50,270. 

For example, if you earned £30,000 a year, your qualifying earnings would be £23,760 as that’s how much of your earnings are within the range.

Can I have both a workplace pension and a personal pension?

There is no limit to how many pensions you can have.  

The only restriction is how much you can pay per year is £60,000 per tax year.

It is quite common to have a personal pension to run alongside your workplace or occupational scheme which can used to transfer once you leave an employer. 

This ensures your pensions are easier to manage and keep track of.

Can I leave a workplace pension?

With the cost of living crisis, you may be wanting to consider pausing your payments into a pension, as you may feel that by not joining you have more take home pay.

You can opt out but generally, it's not a good idea, as you’ll be missing out on tax relief and employer contributions so effectively turning down “free money” and depriving yourself of income later in life. 

Opting out and paying into a SIPP would likely mean you would not get your employer contributions. 

What are the advantages of a workplace scheme?

Here's a summary of the features that make workplace pensions an attractive option for individuals working in the UK.

Convenience

Automatic enrolment simplifies the process for employees. Opt-out options are available for those who choose not to participate.

More contributions

Employer contributions are a significant advantage, potentially more than doubling the amount an employee can contribute. This additional funding can accelerate the growth of the pension fund, leading to a larger retirement fund.

Salary sacrifice

Some employers provide salary sacrifice schemes for more tax-efficient pension contributions. While there may be drawbacks, many individuals opt for this approach to save money while enhancing their pension.

What is Nest?

Nest is just one of several providers of workplace (auto-enrolment) pensions. 

Nest refers to the National Employment Savings Trust, which was set up in 2010 and is the largest pension provider in the UK. Nest is both a workplace and occupational pension scheme.

Nest is a public service body, similar to the BBC or the NHS and was established by the government to help employers meet their auto-enrolment duties for their employees. 

Can you transfer out a workplace scheme?

You can transfer Nest to the following, so long as the scheme is deferred or once you have stopped contributing. 

• Personal pension plan
• Group personal pension
• Occupational scheme operated by trustees
• SIPP (Self-invested personal pension)
• SSAS (Small Self-administered schemes)
• Stakeholder pension
• A qualifying recognised overseas pension scheme (QROPS)
• You can only transfer to a pension scheme recognised by HMRC.

 

Defined contribution

You can transfer a defined contribution occupational scheme to the following, so long as the scheme is deferred or once you have stopped contributing. 

• Personal pension plan
• Group personal pension
• Nest or other auto-enrolment scheme
• SIPP (Self-invested personal pension)
• SSAS (Small self-administered schemes)
• Stakeholder pension
• A qualifying recognised overseas pension scheme (QROPS)

 

You can only transfer to a pension scheme recognised by HMRC.

Defined benefit

It is generally more difficult or impossible to transfer out from a defined benefit occupational scheme. You may have to satisfy some of the criteria below to consider transferring out:

• Minimum age 55
• Scheme deferred
• Have other assets incomes or pensions
• Ill health
• Have a spouse or children

 

Public sector-defined benefit schemes

Many public sector defined benefit schemes are unfunded - where there is no fund to invest, and the pension is paid for by taxes, so it is not possible to transfer out into a DC scheme. 

DB schemes in local government, the civil service, NHS workers, teachers, firefighters, the police and the armed forces all fall into this category.

Get expert advice

Considering all of this, it's very important to seek financial advice before making any decisions. It is likely that your biggest pension pot will be your workplace or an occupational scheme. Therefore, any decision needs to be based on a careful, expert assessment of all circumstances.

Let Regulated Advice match you with a financial advisor for expert advice.