Workplace pensions (also called ‘works’ pensions, company pensions or occupational pensions) are schemes organised by your employer. Here we provide some basic information about workplace pensions.
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If you are a member of a workplace pension scheme then your pension savings will mainly be made up of:
- Your own contributions. These would normally be deducted from your pay before you receive it however you can generally also make extra ‘standalone’ payments into it if you want to. You will be entitled to tax relief on the gross amount contributed. You can read more about the different ways that tax relief is given on pension contributions on our page Tax relief on pension contributions; and
- Employer contributions. If your employer makes a contribution to your workplace pension scheme, it is a tax-free and National Insurance-free benefit for you.
Many people are automatically enrolled into a workplace pension scheme, depending on their level of income. You can read more about this on our page Pensions: auto-enrolment into workplace pensions.
Different types of scheme
Workplace schemes can work in two ways as set out below.
- Defined contribution schemes
These schemes are also sometimes called money purchase arrangements.
These schemes work in the same way as personal pensions - you build up a pot of money and then when you reach retirement age, you can decide how to use it.
- Defined benefit scheme
These schemes are also sometimes called final salary, earnings-based or salary-based schemes.
Members of these schemes do not build up an individual pot of money. Instead, the employer (and usually the employees or workers) contribute to a general pot of money from which the employer promises to pay an amount of pension to its members when they retire. The amount the members get is based upon how long they have worked for the employer and what their earnings were over their years of ‘pensionable service’.
These schemes are becoming increasingly rare and many are closed to new joiners.
Leaving your job
If you are a member of a pension scheme set up by your employer and you leave your job – but you are not retiring – the pension pot is still yours. Your new job may use the same pension company, in which case you can continue to build your existing pot. Or your new employer may offer you a different pension scheme and you can contribute to this new scheme while the pot from your previous job remains invested as before.
It may be possible to combine the pension pots by transferring the pot from your old job into your new scheme. Before you do that you should check that both schemes will allow such transfers and what costs are involved. You can read more about transferring your pension on GOV.UK.
In summary, when you leave a job you may have various options available to you, including:
- leave the pension where it is and draw it when you retire;
- continue paying into the pension after you leave;
- transfer the pension to a different scheme;
- get a refund of your pension contributions (in limited circumstances);
- start to take your pension.
You should always contact your pension scheme administrator, to check the rules and what might be possible.
There is more information on GOV.UK.
We suggest that you also seek independent advice before making a decision, as it may affect the amount of your future pension income.