Workplace Personal Pensions Schemes
Since the introduction of auto-enrolment, workplace personal pensions have become increasingly common here in the UK. But how do these schemes work, and how do they interact with any other pension plans you may already have in place?
In this simple guide to workplace personal pension schemes we’ll address some of the most frequent questions our customers ask us on this topic, such as:
What is the difference between a workplace and personal pension?
A workplace pension can be any pension arranged by an employer, whereas a personal pension is a specific type of scheme that can be arranged by you – or by an employer.
The idea of getting a personal pension through your employer might seem a bit confusing, as these products are usually associated with individuals. But they can also be arranged on your behalf by your workplace, which is then known as a ‘group personal pension’.
The term ‘workplace pension’ is often used informally to describe any pension arranged by an employer, so it’s best to understand a group personal pension as being just one type of pension that you might be offered to employees at your place of work.
Group personal pensions are defined contribution (DC) schemes where your contributions and those of your employer are invested. Like all other personal pensions, workplace personal pensions can be subdivided into different types, including stakeholder pensions, ‘standard’ personal pensions and SIPPs.
Workplace pension vs personal pension: key differences
In terms of how the products work, there should be no essential difference between a (group) personal pension set up by an employer, and one you arrange independently. Both will have a facility to accept employer contributions, they’re subject to exactly the same tax rules and the funds held within them can be transferred to a new provider.
In practice however, there are a few differences to consider: for example you won’t usually have any say in choosing the provider or scheme type when you’re enrolled on a workplace plan, and you can’t switch provider while you’re working for the employer who arranged it.
On the other hand, in most cases you’ll benefit from employer contributions from the start. You may additionally have the option of entering a salary sacrifice arrangement with a personal pension set up by a workplace, which offers additional tax efficiency.
Personal pension and workplace pension FAQ
To answer some of the most common questions we hear from customers wanting to know more about workplace personal pensions, we put together this FAQ for quick and easy reference.
Please get in touch if you have a query about anything on this topic that isn’t covered here.
Can my employer pay into my personal pension?
Yes, in most cases your employer can pay into a personal pension that you arranged yourself.
This will be true whether they set up the pension, you set up the pension independently, or even where both of these scenarios apply, provided they are willing to do so.
However, while you can certainly ask your employer to contribute to your own pension plan, it’s still far more common for companies to pay into schemes they set up on their employees’ behalf, and there’s no obligation for them to contribute to a different scheme.
How much can my employer pay into my personal pension?
For the purposes of tax relief, regardless of whether the payments come from yourself, your employer or a combination of both, you can put up to £40,000 into a personal pension scheme each year tax free.
As an individual, you are limited to paying 100% of your salary in pension contributions, but an employer can in theory contribute more than you earn per year as long as it doesn’t exceed £40,000.
This annual limit applies across all pension schemes you’re in, so you’ll need to consider how much you might have contributed to any others alongside your workplace pension.
Can I transfer my workplace pension to a personal pension?
Yes, you have the option to transfer a workplace pension to a personal pension. In some cases you may not wish to do so, as depending on the type of scheme it is, certain benefits could be lost. But in any case the option to do so should be available to you provided you take the right advice.
If the workplace pension you want to transfer to your own pension plan is classed as a personal pension, the transfer should be relatively straightforward, and you can move your money across to any new provider that will accept inbound transfers.
Alternatively, you can simply keep contributing to any personal pension set up by a former workplace, alongside any other pension plans you may have. Even if you stop contributing to it you will have access to any funds held within it, and it will be classed as a dormant or frozen pension, which can attract charges.
Is Nest a personal pension scheme?
Yes. Nest is a government-backed personal pension scheme that was introduced to make it easier for employers to enrol their staff. It therefore shares its core features with other contract-based personal pension schemes, so your employer can pay into it while you’re working for them, and you can take it with you when you change jobs.
Can I transfer my personal pension into Nest?
Yes, you can transfer money into a Nest pension from another personal pension, provided the scheme you’re transferring funds from fits certain standard criteria, i.e. it’s an officially recognised UK personal pension scheme.
If you’re looking to do this, our guide to Nest pension transfers should be a helpful resource.
Can I opt out of a workplace personal pension?
All employees are now subject to auto-enrolment by law, so you can’t avoid being signed up to your workplace pension scheme. However, once enrolled you are entitled to opt out for any reason. If you do this within 1 month, you will be treated as never having been part of the scheme, and any money you put in will be refunded in full.
Once opted out, you should have the option to rejoin at any time, and your employer is obliged to re-enrol you automatically every three years. You may therefore have to opt out more than once if you stay with the same employer.
Speak to an expert
If you have any further about personal and workplace pensions, the experienced advisors we work with will be happy to answer your questions and help you to find the right pension strategy for you.
All of the advisors on our books have access to the whole pensions market, so they can offer truly impartial advice that’s tailored to your unique needs and preferences.
So please get in touch today for a no-obligations initial chat to help us match you with a qualified personal pensions expert.