Obligations of Workplace Pension Providers
Workplace pensions are offered by most employers and allow you to save money for your retirement. There are many different types of workplace pension providers to choose from and each offers different benefits. In the end, when leaving an employer, most pension providers will give you the option of transferring your pension or leaving it behind. Making the right decision in terms of workplace pension management can be difficult and can require professional financial advice to guide you through the process.
Workplace Pension Providers: Pension Types and Benefits
Workplace pension providers offer a way for you to contribute funds that are set aside for your retirement. A pension provider will also contribute to your pot through the scheme. Currently, there are two types of workplace pensions: stakeholder pensions or occupational pensions.
An occupational pension is set up by the employer. There are a couple of types of occupational pensions including a defined contribution scheme and a final salary scheme.
A final salary pension is linked to an employee’s salary during employment. Should the employee receive a raise, pension contributions will also be increased. This type of pension is based on the employee’s salary at the time of retirement and the number of years the pension has been active. With most types of final salary pensions, the employee will pay a determined percentage of their pay towards their pot while the employer is responsible for paying the rest. This type of pension is not based on investment performance.
With a defined contribution scheme the money the employee pays into their pot is then invested with the goal of providing the employee with a certain amount upon retirement. This type of pension option is based on how much money was paid in and how the investments performed. An employer may or may not be responsible for paying a regular amount towards the pension while the employee typically pays a percentage of their wages. If the employer offers an automatic enrolment pension they are then obligated to contribute.
There are a number of benefits that come with an occupational pension scheme, including life insurance. The life insurance will pay a large lump sum to any dependents named, should you die during employment. This type of pension will also allow you to withdraw your money if you become seriously ill.
Currently, employers have until April of 2017 to enroll any eligible employees in a workplace pension. This is referred to as automatic-enrolment. Employees that are already enrolled in a workplace pension are not eligible. An employee must work in the UK, be under the state pension age and be over the age of twenty-two. The employee must also make more than £10,000 annually. As an employee, you also have the option of opting out.
A stakeholder pension and a workplace pension are similar to private pensions. The employer will choose the pension pot provider. If you’re not eligible for the automatic enrolment workplace pension a stakeholder pension may be your best option.
When you start a new job, it’s important to learn about the type of pension your employer offers, in order to determine if the scheme is worth joining. Find out if you’re eligible for automatic-enrolment, how much of your wages you’ll need to contribute, whether it’s a personal pension or occupational pension, whether or not the employer makes contributions and how your wages will be invested.
If you have decided to join a scheme, you should do so as early as possible. Some types of pensions will not allow older employees to join if they have declined to do so in the past. If you’re unsure as to whether or not you’re eligible, contact your human resources department.
Fortunately, there is no limit regarding how many pots you can have. So even if you already have a pot through another provider you will still be eligible to join your new workplace pension.
When it comes to tax relief there are limits in terms of how much tax relief you can expect based on the contributions you make. If you have multiple pots already, you may need to take a closer look at your monthly finances before you commit to contributing to an additional pot.
If you change employers you can transfer your rights to a new occupational scheme or leave your pension and the funds will be paid to you upon retirement. Some people will choose to transfer their rights to a personal pension or a new occupational pension scheme. It’s also important to remember to notify a past pension provider should you move to a new residence in the future. Keeping past pension providers informed of your location can make things easier during the retirement process.
If your employer doesn’t offer a workplace pension, they will be required to do so by April of 2017. However, if you don’t want to wait for the automatic-enrolment deadline to begin at your place of employment, you can begin to contribute to your retirement by enrolling in a private pension scheme.
Final Thoughts on Workplace Pensions
Pensions are a way to ensure your financial security during retirement and most workplace pensions come with a number of benefits. Because your employer will contribute to your pot you can build up your pension much faster than if you simply had a private pension fund. Basically, with automatic-enrolment, your workplace pension providers will allow you to save money as you earn.
If you feel that your workplace pension will not provide you with enough income during retirement, you can also choose private pension pots to supplement your income. The tricky part is learning how to manage your current financial situation while still contributing enough money towards your pots in preparation for retirement. If you’re approaching retirement and are unsure of your pension pot status, or even how many workplace pension pots you have, contact a financial advisor for support and portfolio management.