Workplace pensions: how your employer’s pension scheme works

A workplace pension is a type of private pension that your employer sets up for you. It might also be called an occupational, company or work-based pension scheme.

There are two main types of workplace pension:

• defined contribution pension
• defined benefit pension

You can use our tool to find out your pension type, check paperwork you’ve received or ask your employer.

Defined benefit pensions are usually only offered to new members in the public sector, like the NHS, education and the Armed Forces.

A defined contribution pension means the amount it will pay you depends on:

• how much is paid in
• how well your invested money performs
• the fees your provider charges
• how and when you take your pension money.

Our full guide about defined contribution pensions explains how they work in detail, but here’s a short summary:

• you usually have to pay in at least 5% of your wages, typically:
  • 4% from you
  • 1% from the government in tax relief
• your employer must contribute into your pension if you earn at least £6,240 a year – this must be worth at least 3% of your wages
• your pension provider will manage and invest your money unless you ask to choose your own investments
• your pension should grow over time, but it can rise and fall in value until you take your money
• most pensions are designed to pay out from around age 65, but you can usually access the money from age 55 (57 from April 2028).

You can use our workplace pension contribution calculator to see an estimate of how much you and your employer will pay into your pension.

How much you’ll pay and what counts as earnings depends on the pension scheme your employer has chosen. Your employer will be able to explain your pension scheme rules.

When you’re ready to take your money, you can choose from a number of options. This includes taking up to 25% as tax-free cash and using the rest for a regular or flexible income.

For all your options, see our guide about taking a defined contribution pension. 

If you’re 50 or over, you can also get a free Pension Wise appointment. This will help you understand the different ways you can take your pension. 

A defined benefit pension means it guarantees to pay you a certain amount when you’re older, usually based on:

• how long you worked for your employer and
• how much you were paid.

For final salary schemes, this is usually calculated using your pay when you stopped working for your employer. For career average schemes, it’s usually worked out using a set portion each time you were paid. 

You typically need to contribute from your wages, but some schemes will be fully funded by your employer. If you do have to pay in, it’s often a set percentage depending on your salary. Contribution rates generally rise the higher your salary is.

Most defined benefit schemes are designed to start paying you a guaranteed income when you reach a certain age, called a normal pension age (NPA). The NPA varies between providers but is often around age 60, 65 or the same as your State Pension ageOpens in a new window

You can usually start taking your pension from age 55 (57 from April 2028) – or earlier if you need to retire due to poor health – but the amount you’ll get will typically be lower than the scheme promised.

You might also be able to take up to 25% of the value of your pension as a tax-free lump sum. Depending on your scheme, this can mean the income it pays will be reduced as a result.

For more information, see our guide about defined benefit pension schemes.

You can ask to join at any time from age 16 to 75, but your employer must set up a workplace pension for you automatically if you’re a UK resident and:

• usually work in the UK
• are between age 22 and the State Pension ageOpens in a new window
• earn more than £10,000 a year or the weekly and monthly ‘earnings thresholds’
• don’t already have a suitable workplace pension.

For more information, see our guide about pension auto-enrolment.

You can tell your employer if you’d like to opt out of your workplace pension, but it’s often like turning down extra pay.

Your employer might have to auto-enrol you again within three years, so you might need to opt out again if you still don’t want a workplace pension.

For more information, see our guide What happens to my pension if I leave a job or opt out?

If you have a defined contribution pension, increasing the amount you pay in can boost your retirement savings. Your employer might also offer contribution matching, where they’ll pay in more if you do.

• Our Pension calculator can show how your retirement income could change if you increased your contributions.
• The Retirement Living Standards also list how much money you might need for a comfortable retirementOpens in a new window
  

If you have a defined benefit pension, how much you get depends on your salary and how long you work for that employer.

To pay in more, you’ll need to check if your scheme lets you build up extra benefits. If it doesn't, you'll need to set up your own personal pension for any additional savings.

You’ll usually stop paying into your pension if you leave your employer, but your provider will continue managing it for you. This means you can choose to:

• leave your pension where it is until you’re able to take the money
• transfer your pension to a new provider, like one at a new employer.

Combining your pensions into one place might seem sensible, but there’s a risk of losing benefits only offered by your existing pension provider.

If you’re considering transferring your pension, find out what to check in our guide about pension transfers.

If you’ve had a number of jobs or employers, you might have lost track of your pension details.

For step-by-step help, see our guide How to find old or lost pensions.

The earliest you can usually take money from a workplace pension scheme is age 55 (57 from April 2028), unless you need to retire earlier due to poor health.

When you’re ready to claim your pension, you can contact your provider to ask for your options. For more help, see our guides about how to take your pension.

If you’re 50 or over with a defined contribution pension, you can get a free Pension Wise appointment to understand your options for taking your money.

Your pension provider will ask you to complete an expression of wish form. This tells them who you’d like to receive your pension after you die, so make sure to keep it updated.

For more information, including how much would be taxed, see our guide What happens to my pension when I die?