Workplace pensions

A workplace pension scheme (sometimes called a defined contribution or money purchase pension) is an occupational pension scheme. Your pension pot is built up from your contributions and your employer’s contributions (if applicable) plus investment returns and tax relief. The size of the pot will depend on how much has been paid in and how well it has done.

As with all types of pension, the amount you are permitted to contribute is limited to 100% of your relevant earnings, up to a maximum of £60,000 per year (2024/25 tax year).

How are my contributions invested?

The scheme provider invests the contributions on your behalf into fund/s that give you access to a range of investments, typically in default multi-asset funds. Many workplace pensions give you the choice of how you invest your money via funds made up between different types of assets or different geographical areas.

No tax is payable on income from investments or capital growth in the pension fund.

What happens if I die before my retirement?

Most schemes will pay out a lump sum. In the event you die under age 75, the lump sum is tax-free. There may also be the option for dependents to choose a regular income rather than a lump sum.

You can nominated who you would like to benefit from any pre-retirement death benefits, but that decision is ultimately down to the scheme Trustees.

Will my employer make contributions towards my pension?

If you work for an employer that operates a workplace scheme they will also have to contribute into your pension fund and there are legal obligations for minimum contribution levels for both the employer and employee. Your employer may choose to be more generous than these minimum amounts.

The government gives extra money through tax relief on top of the money the employer and employee contribute. There are various mechanisms by how this tax relief is given but broadly means that for every £80 you pay into your pension, HMRC top this up to £100.

Who runs my defined contribution pension scheme?

If you are a member of an occupational pension scheme it is not your employer who is responsible for your pension but an insurance company or financial institution.

What are my options to take my pension pot at retirement?

Once you reach minimum pension age of 55 (57 from 2028), you have access to your defined contribution schemes pension pot. It is up to you how you take the benefits from your pension pot. You can take your benefits in a number of different ways but it will also depend on the rules of your defined contribution scheme as to what they allow.

Keep in mind that you may be able to choose one option or a combination of options. You can read more about the various methods of withdrawing from your pension in our Pension Withdrawal knowledge article.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future. You should seek professional financial advice to ensure you fully understand your options at retirement.