Workplace Pensions Rules & Contributions

A workplace pension helps you save for the future automatically, with your employer and the Government adding to what you put in. Over time, these combined contributions can make a meaningful difference to your retirement income.

What Is a Workplace Pension?

A workplace pension is a retirement savings scheme that your employer sets up for you. Both you and your employer contribute, and the Government adds tax relief to increase your savings. A workplace pension is designed to help you build a long-term income for retirement. For most people in employment, being part of a workplace pension is the easiest and most efficient way to save.

Under the UK’s automatic enrolment rules, employers must:

• enrol workers aged 22 or over who earn at least £10,000 per year
• pay a minimum level of workplace pension contributions
• provide access to a qualifying workplace pension scheme

Once enrolled, contributions are automatically taken from your salary each month.

Workplace pensions work alongside the State Pension, helping to build a fuller and more secure retirement income by bridging the gap between what the State Pension provides and the lifestyle you want in later life.

Types of Workplace Pension Schemes

There are several types of workplace pension schemes in the UK. While they all serve the same purpose, saving for retirement, they work in different ways and offer different levels of certainty.

Defined Contribution (DC) Workplace Pensions

This is the most common workplace pension today, especially under automatic enrolment. A defined contribution workplace pension builds a pot of money over time. The value of your pot depends on:

• how much you and your employer contribute
• tax relief
• investment performance
• charges applied by the provider

At retirement, your pot can be used flexibly; you can take lump sums, start drawdown, or buy an annuity.

Key features include:

• Your contributions are invested in funds selected either by you or, if you prefer, by the scheme’s default option.
• Your pension pot can go up or down depending on market performance and investment choices.
• You have flexibility at retirement, with options such as drawdown, lump sums or buying an annuity.
• Schemes are typically run by major providers such as Nest, Aviva, Scottish Widows or Legal & General.

Defined Benefit (DB) or Final Salary Pensions

These are less common today but are still offered by some public sector and older corporate schemes. Instead of building a pot, you earn a guaranteed income for life based on:

• your salary while working
• how long you were in the scheme
• the scheme’s accrual rate

Defined Benefit pensions are considered highly valuable because the employer carries the investment risk and guarantees the income.

Key features include:

• A guaranteed income for life, with payments that typically rise each year to help keep pace with inflation.
• No investment risk, as your income is not tied to market performance, the scheme promises a payout, regardless of how investments perform.
• Limited availability, as these schemes are now uncommon in the private sector and are mostly found within the public sector or long-standing corporate arrangements.

If you have this type of pension, and you would like some help, you will need to seek advice from a professional with a specific qualification and regulatory permission. For example, regulated advisers with the CII Level 6 Award in Regulated Pension Transfers can help.

Group Personal Pensions (GPPs)

These are personal pensions arranged by your employer with a pension provider. They operate like defined contribution pensions but are classified as personal pensions rather than occupational schemes.

Key features include:

• An individual plan for each employee, held within the employer’s group arrangement.
• Contributions are taken directly from your salary, making saving automatic and consistent.
• Access to default investment pathways, designed to guide savers toward suitable long-term investment choices.

Workplace Pension Contributions

Workplace pension contributions come from three sources working together: your payments, your employer’s payments, and the Government’s tax relief. This combined approach helps your pension grow faster than saving alone.

Under automatic enrolment rules, the minimum total contribution is 8% of qualifying earnings. This is made up of:

5% from you, which includes the tax relief added by the Government

3% from your employer, paid directly into your pension

Many employers choose to do more than the minimum. Some offer enhanced contributions or matching schemes, for example, if you contribute 5%, they may match it with another 5%, significantly increasing your long-term retirement savings.

Salary sacrifice and workplace pension contributions

Some employers offer a salary sacrifice arrangement, where you agree to give up part of your salary and your employer pays it directly into your pension. This reduces both your National Insurance contributions and your employer’s National Insurance (NI).

Many employers pass part of their NI savings back to you through higher pension contributions. This can make workplace pension contributions significantly more tax-efficient than contributing to a private pension alone.

Example: How Workplace Pension Contributions Work

If you earn £30,000 per year:

• You contribute 5% → £1,500
• Employer contributes 3% → £900
• Government adds tax relief → included within your 5%

Total annual workplace pension contribution = £2,400

Your contributions are invested into funds chosen either by you or set as the scheme’s default option. Providers offer a range of investment strategies to include:

• cautious or lower-risk funds
• balanced portfolios
• higher-risk growth funds
• ethical or ESG-focused options
• lifestyle strategies that reduce risk as you approach retirement

If you do not choose your own funds, your money is typically placed into a default investment fund designed for a broad mix of savers.

Investment risk and performance

Investment performance directly affects the size of your final pension pot. All investments carry risk, but workplace pension providers must offer clear information about each fund’s level of risk and expected return.

Reviewing your investments

Regularly reviewing your investment funds is important to ensure they continue to meet your retirement goals, the investment risk you’re prepared to take, and the age you expect to retire. Most workplace pensions offer online dashboards, making it easy to monitor performance and adjust your choices when needed.

Workplace pension calculators enable you to enter your salary, contribution levels and planned retirement age to see how your pension could grow over time. They also show how increasing your contributions or receiving higher employer payments might affect your final pot.

Tools such as the MoneyHelper pension calculator use assumptions about investment returns, inflation and charges to indicate how your pension might develop. While the results aren’t guaranteed, they provide a useful snapshot to help you plan and make informed decisions about your long-term retirement income.

Accessing Your Workplace Pension

Your workplace pension is a type of defined contribution or defined benefit pension, and access rules depend on the scheme.

Defined Contribution (DC) schemes

With a defined contribution scheme, you can normally access your pot from age 55 (or age 57 from 2028). Your options include:

• Taking up to 25% tax-free
• Flexi-access drawdown
• Annuity purchase
• Lump-sum withdrawals (UFPLS)

Any taxable withdrawals are added to your income for the year.

Defined Benefit (DB) schemes

You are entitled to a guaranteed income from your scheme’s normal pension age, which is typically 60 or 65. Early access may be possible, but it may reduce the income you receive.

Leaving a Job: What Happens to Your Workplace Pension?

Leaving a job does not mean losing your pension. What happens depends on your scheme type:

If you have a Defined Contribution workplace pension:

• Your pot stays invested with the provider
• You can leave it where it is, or move it to another pension
• Your new employer will set up a separate workplace pension

You do not lose any money already contributed.

If you have a Defined Benefit pension

• You retain the benefits you’ve built up
• Your pension becomes “deferred”
• Income is paid when you reach the scheme’s pension age

You may be able to transfer a DB pension to a DC pension, but you will need to seek mandatory advice if the value exceeds £30,000.

How My Pension Expert Can Help You Understand Your Options

Workplace pensions form an essential part of your long-term financial security, but the rules, contributions and investment choices can be complex. Many people are unsure whether to increase contributions, consolidate previous workplace pensions, or how best to access their savings when they retire.

My Pension Expert can help you:

• Understand your workplace pension scheme and contribution levels
• Assess whether consolidating old workplace pensions is right for you
• Review the investment risk and performance of your existing pension
• Explore your options for accessing your workplace pension
• Build a personalised retirement plan based on your goals

Our aim is to provide clear, regulated guidance so you can make confident decisions about your pension income.

Frequently Asked Questions