How do company pensions work?

  • A company pension offers you a tax-efficient way to save
  • You and your employer make payments while you’re working
  • When you retire, any money held in your pension pot can be used to provide you with an income, or a tax-free lump sum and a smaller income, for the rest of your life
What is automatic enrolment?

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 What is auto enrolment - video transcript

Workplace pensions: what is changing and why

The good news is that we are living longer, which means we will be spending more time in retirement. But the bad news is that there will be fewer people of working age paying into the State Pension system.

In 1901 the ratio of workers to pensioners was 10:1, in 2005 it was 4:1. 2050 it is estimated that there will be just two workers to every pensioner. It will become harder for the state to support us when we retire - so we will need to save more ourselves.

Many of us put off starting a pension, or feel we cannot afford one. Overall, only 49% of us are saving for retirement, and only 50% of us who have a company pension scheme choose to join.

To make it easier to save for retirement, the law is changing so that all employers will have to provide a workplace pension - and contribute to it. If you are not already in a workplace scheme and you are eligible, you will automatically be enrolled in one. This is called auto-enrolment, and it was introduced in 2012.

To help everyone adjust, the new regulations are being phased in gradually. This started in 2012 with very large employers. Others will follow in stages to at least 2018.

You will be eligible if; you are not already part of a company scheme that meets the government is standards; you are at least 22 years old but below State Pension age; you earn more than £9,440 a year - or the monthly or weekly equivalent, depending on how you are paid; and you work in the UK.

Even if you are not eligible, check with your employer as you might still be able to join.

If you decide you do not want to be part of your workplace scheme you can choose to opt out, but you can rejoin in the future if you want to.

If you have opted out, your employer will enrol you back into the scheme roughly every three years if you are still eligible. This gives you a regular opportunity to reassess your situation.

The government has set minimum levels for the total amount that is paid into a workplace pension, although your employer may set higher contribution levels.

This amount is calculated as a percentage of your qualifying earnings...starting at 2% in 2012, rising to 5% in 2017, and 8% in 2018.

One of the benefits of the new regulations is that your employer has to contribute to your pension.

The minimum starts at 1% of your qualifying earnings and rises in stages to 3% by 2018.

This contribution comes directly from your employer and is over and above your take home pay.

To qualify for a pension contribution from your employer you may have to pay in too. This might just be the amount needed to top up your employer is contributions to the minimum total amount, or your employer could set a higher amount.

However, your employer could choose to pay more than the minimum contribution or even the whole cost.

But if you are serious about planning for life after you stop work, you could always choose to pay in more.

Remember, you can usually get tax relief on every payment you make. Laws and tax rules, though, can change in the future.

Each employer has a date when they have to begin enrolling people automatically; your employer will write to you in advance about how exactly the process will be introduced in your workplace.

So to sum up:

Auto-enrolment is being phased in over several years.

Minimum contribution levels are set by the government - these will increase over time.

You can opt out of the scheme or rejoin in the future if you want to.

We all need to save more for retirement; the good news is that auto-enrolment will make it easier.

Standard Life: the way forward.

 How can my employer help?

By collecting your payments from your salary and forwarding them on to us, or by making payments to your pension plan, your employer could help boost the size of your pension pot when you retire.

Depending on how the plan has been set up, you may have some say in how your money is invested and you could decide how much you contribute.

Your employer's payment may be conditional on choosing from a list of funds specially selected by them and their adviser. So, speak to your employer for more information about how they’ll help with your pension planning.

 Keep an eye on your retirement savings

If you’re an employee in one of our company pension schemes, visit Employeezone where you can:

  • check your plan details
  • get an up-to-date value for your plan
  • change your payment details

 How does auto-enrolment work?

Introduced by the Government to encourage workers to save for their retirement, auto-enrolment means all employers must enrol their eligible workers into a workplace pension, if they’re not already in one.

  • Employers are responsible for making all the arrangements
  • Employers pay a minimum contribution into the pension scheme of their eligible workers
  • The Government also gives generous tax benefits

To be eligible, employees must:

  • be at least 22 years old
  • be below State Pension age
  • work in the UK
  • earn more than the minimum amount of £10,000 a year
  • not already be enrolled in a workplace pension scheme that meets Government standards

Contact us

If there's anything you’re not clear about, speak to your employer or a financial adviser. Alternatively, you can call us on 0845 60 60 075.

Calls may be monitored and/or recorded to protect both you and us and help with our training. Call charges will vary.

Tax rules and legislation may change. The value of tax relief may change and will depend on your financial circumstances. The information we have given is based on our understanding of law and current HM Revenue & Customs practice as at May 2014.

The value of any investment can go up or down and may be worth less than was paid in.