What’s a Workplace Pension Scheme?

Stakeholder Pension Plan: Know Your Options in Retirement Planning

You just got your dream job – an executive sales assistant at one of the biggest companies in the UK. You’re elated & can’t wait to strut into the office, dressed to kill & to look stunning than Amber Heard at the Rum Diary. You can’t also wait for the incredible benefits offered by your new bosses – from Child Care Benefits, medical allowance, travel allowance, house allowance & now a substantial workplace pension that’ll ensure your future is secure. What else would a girl want, right? Clearly, Santa has been looking out for you this year. If you, however, haven’t made any plans to future-proof your sunset years, you need to start looking for a credible pension fund1 to invest in. If you’re employed, of course, your boss is required by law to contribute to your pension pot. But even with them paying into it, you need to know what workplace pensions are all about. Lucky for you, here’s a detailed review of workplace pensions, how they work & how to cash in your pension scheme.
What’s A Workplace Pension Scheme

Workplace Pensions Defined

As per the UK pensions law, an employer is supposed to set up an occupational pension plan to offer a sizeable pension pot for their personnel.


There are two types of workplace pensions:

The Defined Contributions Pension Scheme

It’s also referred to as the money purchase plan, and it’s a pension scheme where your pension provider invests your contributions in various asset funds like shares, bonds1, stocks, property, among others. The amount you receive when your retire is dependent on how your investments perform.

Defined Benefits Pension Schemes

It’s also referred to as the final salary scheme, and the amount you receive upon retirement depends on your income and the number of years you’ve worked for your boss. Your pension provider will offer you a specific amount each year when you give up working. Your pension fund isn’t based on the investments made. The number of employers providing the final salary schemes to their staff has declined in the past five years, even though they’re still widespread across the public sector.

How Workplace Pensions Work

How Workplace Pensions Work

Let’s get down to business:

The most modern occupational pensions are the defined contribution pension schemes. That practically means that the amount you receive upon retirement will be based on the amount you’ve been contributing to your pension plan and how the asset funds have performed over time.

You see:

When you relocate to a new firm or when your boss establishes a new pension fund, you’ll get information about the pension plan and figure out the percentage of your income that’ll be paid into your occupational pension scheme.

Here’s how:

Your boss will then deduct your pension scheme contributions straight from your salary before they transfer them into your account. In most cases, your boss will also include some capital to your workplace pension, and the pension lender will add cash from the state in the form of tax relief (you receive tax relief of £25).

You can opt to set up a personal pension as well as an occupational pension. One of the main reasons for doing that is if you want to combine your old pensions, including those from your former bosses, into your newest pension scheme.

Defined Benefit Pensions

You might have a defined benefits pension scheme if you’ve been working at a prominent firm or in the public sector. If you have the final salary plan, the amount you get when you retire is usually dependent on how long you’ve been an active member of the pension scheme. It’s also based on your revenue (either your income upon retirement or an average of your wages during your working years).

With this pension fund, however, you need to ensure that you seek guidance from an independent financial advisor (IFA2). It’s especially vital if you have a final salary scheme that’s worth over £30,000.

Auto-Enrolment into Workplace Pensions

Auto-Enrolment into Workplace Pensions

According to the new pension rules, bosses now have to automatically enroll a number of their personnel into a workplace pension plan. They’re also supposed to make a specific level of contributions to the fund. These will typically be defined contributions pension plans.


If you receive more than £10,000 every year and are aged between 22 years and the set state pension age, 66 years, you’ll undoubtedly be automatically enrolled in your occupational pension scheme. If you’d want to opt-out of the pension plan, you’ll have to inform your employer beforehand.

The least employee contributions are currently set at 5% of your qualifying remunerations, while the least amount of pension contributions your boss has to make is 3%. 

Cashing in Your Workplace Pension

When you reach 55 years, you can do numerous things with the capital in your workplace pension scheme, just like you would with the personal pension scheme.

Got Questions? Check These First

Is A Workplace Pension Different From A State Pension?

Can You Get Your Workplace Pension Back?

Is It Worth Having a Workplace Pension?

Who Pays into A Workplace Pension?

In conclusion

To sum it all up:

The UK government has recently announced that it is looking into the idea of a workplace pension scheme. There are many debates about implementing such a system and what benefits it would provide, but one thing seems inevitable. This change will impact future generations who may not be able to save up enough money for their retirement years.


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