Save for the future with your workplace pension.

A workplace pension is a tax efficient way of saving for retirement that’s set up for you through your workplace and it’s a term used to describe all forms of pension scheme offered by an employer.

A workplace pension aims to make saving for retirement easy and straightforward. Contributions to your pension pot are usually paid in by you and your employer each month.

The tax efficiency of contributing to a workplace pension is achieved in differing ways. Through salary sacrifice and net pay arrangements, you will pay less tax as contributions are taken from your pay before you are taxed. Alternatively, there is relief at source, where contributions are paid after you have been taxed and basic rate tax relief is then added to your pot with each contribution. For more details on these methods of contributing, please see our Putting money into your pension page. How you contribute will depend on the type of scheme you’re in and how your employer has set up to pay contributions. The value of any tax benefits will depend on your individual circumstances and may be subject to change.

The sooner you start saving, the more time your money has to potentially grow. The normal minimum pension age for taking benefits from a pension is usually 55 – this is rising to age 57 from 6 April 2028.

How do you join a workplace pension scheme?

When you work for an employer, they need to set up a workplace pension scheme by law – this is called auto-enrolment. This applies to any size of business, even small employers. You should be enrolled from the date you start with the company if you’re eligible.

You’ll be eligible for your employer’s workplace pension scheme and automatically enrolled if all of the following apply:

  • You’re classed as a ‘worker’
  • You’re aged between 22 and the current State Pension age
  • You earn at least £10,000 a year
  • You usually work in the UK

If you don’t meet this criteria, you still have a right to opt in to the pension scheme if you wish. However, your employer doesn’t have to contribute if you earn the same or less than:

  • £520 a month
  • £120 a week
  • £480 over 4 weeks

You also have the right to opt out of your workplace pension, but think carefully before you do this. Opting out means you’ll miss out on contributions from your employer and won’t benefit from the tax efficiency of contributing.

Are there different types of workplace pension?

There are several different types of workplace pension schemes. Two of the most common are defined-contribution and defined-benefit pension schemes.

Defined-contribution schemes

A defined-contribution pension scheme is the most common way to save for retirement in a tax efficient manner. You and your employer contribute to help you build a pot of money. You can then choose how to take this money as an income when you retire.

  • The value of your pension pot may fall as well as rise depending on how your chosen investments perform. The value of your pension pot when you come to take benefits could be less than has been paid in.

You can usually take 25% of your pension as a tax-free lump sum and use the rest to purchase an annuity, move into flexi-access drawdown, or take as a taxable lump sum.

Defined-benefit schemes

A defined-benefit pension scheme is usually only available in the public sector, or if you’re in an older workplace pension scheme. If you have a defined-benefit pension, you’ll usually be in a ‘final salary’ or ‘career average’ scheme. Your employer will contribute to this and is responsible for making sure there are sufficient funds to pay the pension when the time comes. You may be able to contribute to this too, and this may be a requirement, depending on the scheme.

How much you receive from a defined-benefit pension scheme is dependent on the scheme’s rules, rather than how much you’ve invested or contributed.

You'll either get a proportion of your final salary for each year of service as a scheme member (this can be different to service with the employer). This is known as a final salary pension. Or with a career average scheme, you’ll receive your pension based on the average of your pensionable earnings throughout your career while a scheme member. In this type of defined-benefit scheme, your average pensionable earnings are revalued to account for inflation to give your final pension value. You can also usually take a tax-free lump sum with defined-benefit schemes