UK HR Term
Workplace pension
A workplace pension is a pension scheme arranged by an employer to help employees save for retirement, with contributions deducted directly from pay. UK employers are legally required to provide a qualifying workplace pension under auto-enrolment rules.
In plain English
A workplace pension is a pension scheme arranged through your employer, with contributions deducted directly from your pay. Since 2012, every UK employer has been legally required to provide one and contribute to it for eligible workers — this is auto-enrolment.
Two main types
- Defined contribution (DC) — both you and your employer pay in, the money is invested, and the eventual pension depends on how much was contributed and how the investments performed. Almost all new workplace pensions are DC.
- Defined benefit (DB) — promises a specific income in retirement based on salary and service length. Largely closed to new members in the private sector; still common in the public sector.
Minimum contributions
Under auto-enrolment, the total minimum is 8% of qualifying earnings — at least 3% from the employer and 5% from the worker (which includes basic-rate tax relief paid in by HMRC).
Tax treatment
Contributions are usually paid before tax, so a £100 contribution costs a basic-rate taxpayer £80 net. Higher-rate taxpayers can claim additional relief through Self Assessment.
Choosing a scheme
Employers can use:
- NEST (the government default — accepts every employer)
- A commercial master trust (The People's Pension, Smart Pension, etc.)
- A group personal pension through an insurer
- An occupational scheme they run themselves (rare for SMEs)
The scheme must be a "qualifying scheme" under auto-enrolment rules — which in practice all the named schemes above are.