A workplace pension helps you save for retirement through your job. Your employer usually pays in too, and you can get tax relief on your contributions.
You can receive a workplace pension alongside the State Pension.
Joining a workplace pension
Your employer must normally enrol you automatically and pay into your pension if all these conditions apply:
- you are classed as a worker, which includes employees and some agency or casual workers
- you are aged 22 or over and below State Pension age
- you earn at least £10,000 a year
- you usually work in the UK
This is called ‘automatic enrolment’. Your employer arranges the pension and takes your contributions from your pay.
If you fall outside these conditions, you may still be able to join. Whether your employer must contribute depends on your age and earnings. Check the workplace pension joining rules.
How much goes into your pension
In most automatic enrolment schemes, the minimum total contribution is 8% of qualifying earnings. Your employer must pay at least 3%. The remaining 5% usually comes from you, including tax relief.
For the 2026 to 2027 tax year, qualifying earnings are normally the part of your annual earnings between £6,240 and £50,270. Contributions are therefore often based on part of your pay.
Your scheme may use a different calculation or pay more than the minimum. Ask your employer which earnings count and what percentage they pay.
Employer contribution matching
Some employers increase their contribution when you increase yours. This is called ‘contribution matching’. The rate and maximum amount depend on your employer.
For example, a scheme might match contributions up to 6% of your salary. Paying 6% would then mean your employer also pays 6%.
Ask what you need to pay to receive the full employer contribution. This adds to your retirement savings, although you usually cannot use the money until later in life.
The two main pension types
Defined contribution pensions
A defined contribution pension builds up a pot of money. Your pension provider invests the contributions, and the pot’s value rises or falls with those investments.
Your eventual retirement income depends on:
- how much you and your employer pay in
- how the investments perform
- the fees you pay
- when and how you take the money
Defined benefit pensions
A defined benefit pension promises a regular retirement income under the scheme’s rules. It is usually based on your salary and how long you belong to the scheme.
You may see these called ‘final salary’ or ‘career average’ pensions. Your income is calculated under the scheme’s rules, rather than from the value of an individual investment pot.
How your pension is invested
With a defined contribution pension, your provider usually chooses an investment fund unless you select another option.
Funds can hold shares in companies, bonds or a mixture of investments. Bonds are loans to governments or companies.
Share funds offer the potential for higher growth over many years, but their value can change sharply. Bond funds are often less volatile, although they can also lose value.
Saving over several decades gives investments more time to recover from falls. It does not remove the risk of loss or guarantee a particular return.
Spreading money across many companies and countries reduces reliance on any one investment. A global index fund does this by following a market index of shares from around the world.
Check your fund’s fees and whether it changes its investments as you approach retirement. The right mix depends partly on when you expect to use the money.
How tax relief works
Tax relief reduces the cost of paying into a pension. The method depends on your scheme.
With ‘net pay’, your employer takes your contribution before calculating Income Tax. You get relief through paying less tax on your wages.
With ‘relief at source’, your contribution comes from pay after tax. The provider then claims basic rate tax relief and adds it to your pension.
For example, you pay £80 and the provider adds £20, giving you a £100 contribution. If you pay Income Tax above 20%, you may need to claim extra relief yourself.
Some employers offer ‘salary sacrifice’. You agree to lower your salary, and your employer pays that amount into your pension. This can also reduce National Insurance.
Check your payslip or ask your payroll team which method you use. GOV.UK explains how to claim pension tax relief.
What happens if you opt out
You can leave your workplace pension. This gives you more money to spend now, but usually means losing future employer contributions and tax relief.
A worked example
Suppose your scheme uses relief at source and you pay £120 each month from your take-home pay. You pay Income Tax at 20% and get no extra tax relief.
Each month, your pension receives:
- £120 from you
- £30 in tax relief
- £90 from your employer, under this example scheme’s rules
That is £240 going into your pension at a cost of £120 to you.
If you opt out, your take-home pay rises by £120, but the £240 monthly pension payment stops. The exact amounts depend on your scheme and tax position.
If you opt out within one month of automatic enrolment, you normally get your contributions refunded. After that, money already paid in will usually stay in the pension until you can take it.
Your employer normally enrols you again every three years if you still qualify. You can choose to opt out again. Read the rules for leaving a workplace pension before doing so.
Taking money from your pension
You can usually access a private pension from age 55. The normal minimum age rises to 57 on 6 April 2028. Exceptions include some protected pension ages and ill health.
Your scheme may have a later normal retirement age. Check its rules before planning when to take your pension.
Taking a tax-free lump sum
You can usually take up to 25% of a defined contribution pot tax-free, subject to your remaining lump sum allowance.
The standard allowance is £268,275 across all your pensions, rather than for each pot. Other pension withdrawals usually count as taxable income.
For example, a £100,000 pot could provide £25,000 tax-free if you have enough allowance left. The remaining £75,000 is taxable when you take it.
Defined benefit schemes have their own lump sum rules. Taking cash may reduce your regular pension income, so ask for figures showing both options.
Some people have a protected right to a higher tax-free amount. Your provider can confirm this and how much of your lump sum allowance remains.