Workplace Pensions
The Basics

Introduction

Over the next few minutes, you'll learn the basics of Workplace Pensions, so you can begin to make your dream Retirement A Reality.

What is a Workplace Pension?

A workplace pension scheme is a way for you and your employer to put money away for your retirement.  The objective of a pension is to support you and your financial needs when you stop working.

"IThe money you put into your pension pot is topped up by your employer and the government – it includes extra 'free' money and is a great way to add to your retirement savings!"

The Benefits of Workplace Pensions

What's in it for you, you may ask? Plenty! Let's break it down:

• Employer Contributions: Imagine your employer as your retirement savings partner, topping up your contributions. It's like getting a bonus every month, except it's going straight into your pension pot.
• Tax Relief: every pound you contribute to your pension pot gets a tax rebate from the government. That means you're effectively paying less tax while boosting your retirement savings. It's a win-win!
• Investment Growth: Now, let's talk about the real game-changer—investment growth. By investing your contributions, especially in a pension like eurikah, you're giving your money the chance to grow over the long term. Think of it as planting seeds today that will grow into a bountiful harvest tomorrow.

What types of Workplace Pension are there?

There are two main types of workplace pension (most employees today are paying into a Defined Contribution Pension):‍

Occupational pensions: these are set up by your employer to provide pensions for their employees and fall into two main categories:

• Occupational Pensions: these are set up by your employer to provide pensions for their employees and fall into two main categories:
  • Defined Benefit Schemes: If you’re still working and building your pension, it’s becoming increasingly unlikely you will find this kind of scheme available to you. In a Defined Benefit scheme, your pension is linked to your salary while you're working.  This means it automatically increases as your pay rises. Your pension is based on your pay at retirement and the number of years you have been in the scheme.
  • Defined Contribution Schemes: These are the most common pensions available today, with a Defined Contribution scheme, your money is invested with the aim of building a large enough amount for you to live off when you retire.
• Group Personal Pensions: You pay contributions into your pension fund direct from your wages. The money is invested to grow your fund which you use to provide you with a pension when you retire. The main difference between arranging a personal or stakeholder pension yourself and joining one through your workplace is the amount of control you have over how the money you pay into your fund is invested. With a workplace scheme, the investment choices may be made for you by the provider. Group personal pensions and stakeholder pensions may be an option if you are not eligible to automatically enrol into your workplace pension

How do I join my workplace pension?

Auto-enrolment rules make it mandatory for your employer to enrol you into their workplace pension if you're an eligible employee. You'll be eligible if you're:

• Not already in a workplace pension
• Aged 22 or over
• Under State Pension age
• Earning more than £10,000 a year
• Working in the UK

You can opt out of the workplace scheme, however in most cases it’s usually a good idea to contribute, due to your employer making contributions and the tax relief you’ll receive (more on these later)

How do i make contributions?

The amount you and your employer pay towards the pension depends on:

• What type of workplace pension scheme you’re in
• Whether you’ve been automatically enrolled in a workplace pension or you’ve joined one voluntarily (‘opted in’)

If you have been auto-enrolled, you and your employer must pay a percentage of your earnings into your workplace pension scheme.

How much you pay and what counts as earnings depends on the pension scheme your employer has chosen. Since April 2019 the minimum contributions based on your salary are:

• Employer contributes: 3%
• Employee contributes: 5%
  

As an example, if you earn £30,000 a year, your monthly contributions will look like:

• Employer: £59.40
• Employee: £99.00
• Total monthly contributions: £158.40

There are 3 ways to make contributions (you can speak directly to your employer to understand what options are available to you):

1. Net Pay: Your employer takes your contribution from your pay before it’s taxed. You only pay tax on what’s left. This means you get full tax relief
2. Relief at Source: Your employer takes your pension contribution after taking tax and National Insurance from your pay. However much you earn, your pension provider then adds tax relief to your pension pot at the basic tax rate
3. Salary Sacrifice: You give up part of your salary and your employer pays this straight into your pension. In some cases, this will mean you and your employer pay less tax and National Insurance

Do i get tax relief?

The government will usually add money to your workplace pension in the form of tax relief if both of the following apply:

• You pay Income Tax
• You pay into a personal or workplace pension
  

Whilst the amounts can vary depending on your individual circumstances, if you are a basic rate taxpayer in England, you can expect to receive 20% tax relief paid directly into your pension

What are my options at retirement?

When you reach the eligible age to take your pension (currently these ages differ between your workplace/personal pensions (currently 55) and your state pension (will rise to 67 by 2028) you have a number of options:

• Do nothing: You don’t have to take your pension as soon as you’re eligible, you can leave your money and even continue to contribute
• Take a lump sum: You can choose to take up to 25% of your pension pot tax-free.
• Begin to drawdown (take an income): Where you choose to withdraw a lump sum or not, you can use your pension to pay an income. You decide how much to take out and when. You can set up a regular income if you choose. How long it lasts will depend on how your investments perform and how much you take out. A common figure is to aim to withdraw no more than 4% each year
• Buy an annuity: You can choose to take up to 25% of your pension pot tax-free. You can then use the rest of your pot to buy an annuity that guarantees you an income for the rest of your life – no matter how long you live. You can also get a guaranteed income for a fixed period.
• Withdraw your entire pension: You can cash in your entire pot – 25% is tax-free, and the rest is taxable.

Key Takeaways

As you embark on your journey towards retirement, keep these key messages in mind:

1. Start Early: The earlier you start saving for retirement, the easier it is to build a substantial retirement fund. Even small contributions today can make a big difference tomorrow.
2. Take Advantage of Employer Contributions: Employer contributions are like free money—maximize this benefit to turbocharge your retirement savings without any extra effort.
3. Understand Your Pension Options: We're here to guide you through the maze of pension jargon and help you make informed decisions that align with your retirement goals.
4. Stay Engaged: Retirement planning is not a set-it-and-forget-it affair. Make it a habit to review your pension statements regularly and understand if you're still on track and receiving a suitable pension for your retirement needs. With our expert guidance, you can stay on track to achieve a retirement that's both achievable and comfortable.

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