In the early years of your career, pensions can feel a long way off. But pension saving is vital. This page is about pensions for CSP members who are not covered by NHS Agenda for Change.
On this page:
- Where to start with pensions
- Finding out about your entitlement
- The main types of pension
- Defined contribution pensions
- Defined benefit pensions
Everybody needs a good understanding of workplace pensions - and where to go for free and reliable expert help. Big changes have been made to workplace pensions, especially with the introduction of pensions auto-enrolment.
There are some useful government resources to help you get to grips with your pension, offering free and impartial specialist advice.
The main one is the Pensions Advisory Service. There is also the government's Money Advice Service - and if you are over 50, you can get tailored pension advice from a government service called Pensionwise. The government is bringing all these services together under one roof - the Money and Pensions Service.
You can also find helpful information about joining a workplace pension on the gov.uk portal.
Most of us get a government top-up to our pension savings in the form of tax relief when we make pension contributions. For good, clear information about how this works - and about pensions more generally – look at the resources from tax charity the Low Incomes Tax Reform Group.
Wherever you go for help with your pension, beware of pensions scammers. The Money Advice Service has put together some good guidance on how to avoid getting scammed.
In any job offer, your pension is one of the most important terms to pay attention to – even at the start of your career. After all, your pension is simply your deferred wages. You are working now in return for pay at the end of your working life.
Your job offer and your employment contract should clearly spell out what kind of pension is provided. Your employer is contractually bound to keep any promises they make to you about your pension. Those promises can only be changed with your agreement.
As well as being set out clearly in your job offer, your employer must include information about any terms and conditions relating to your pension in your written statement of employment particulars.
You must be given an amended statement if any of these pension arrangements change.
Your own pension contributions must be shown clearly on your wage slip as a deduction.
Apart from the State Pension, there are two main types of workplace pension:
- defined contribution, based on how much money has been saved and invested through your pension pot; and
- defined benefit (final salary or 'career average'), based on your salary and how long you've worked for your employer.
The key difference between these two types is that with a defined contribution scheme, your employer is not obliged to pay you a specified amount at retirement. Instead, what you get on retirement can change, depending on how much is saved into your pot and how your pension investments perform, combined with any tax relief.
By contrast, with a defined benefit scheme, your employer's scheme promises to pay you a certain amount at retirement and your employer is responsible for ensuring there are enough funds in the plan to achieve that, even if investments do not perform as well as hoped.
You can find out more about the different types of pension from the government's Money Advice Service.
Defined contribution schemes are sometimes also called 'money purchase' pensions. The money paid in by you and/or your employer is invested by your pension provider. You may be offered a choice over how your contributions are invested.
How much you get when you retire depends on how much was paid in, how long it was invested for, how well your investments have done, and management charges.
Defined contribution schemes are managed by an external organisation – typically a pension or insurance company - not by your employer. This has the advantage that your pension pot is not put at risk if your employer goes bust.
Sometimes, when employers get into financial difficulty, in their final months before going bust they fail to hand over pension contributions – yours and theirs – to the pension provider. If this happens to you, the accountants in charge of winding up your employer should contact the National Insurance Fund, who will cover up to 12 months' worth of missing contributions.
There is more information on the website of the Pensions Advisory Service.
Defined benefit pension schemes provide retirement benefits based on your earnings and the length of time you have been a scheme member.
They can be based on your average earnings ('career average') or on your final salary. The rules on what counts as 'earnings' will depend on the scheme rules.
Hardly any private sector employers still offer defined benefit schemes to new employees because of the long-term cost commitments they involve.
Where a private sector employer gets into financial difficulty and has a defined benefit pension scheme without enough assets to cover its liabilities, the pension may be protected by the Pension Protection Fund (PPF) up to certain limits.
All the main public service pension schemes, including the NHS Pension Scheme, are statutory defined benefit pension schemes. They provide pension benefits based on your salary and length of service. Nearly all require employee contributions alongside those of the employer.
Pension auto-enrolment is a government initiative designed to encourage more workers to build up a pension pot so they don't rely on just the state pension, which is not enough for a comfortable retirement.
If your employer did not provide a good workplace pension before pensions auto-enrolment came in, it now must comply with auto-enrolment. This is even if your contract says nothing about pensions.
Your employer must put in place an auto-enrolment pension for you, as long as you meet the age and earnings threshold, unless your employer already operates a qualifying scheme into which you and your employer both make big enough contributions.
You can opt out of the arrangement once you have been auto-enrolled, but the Pensions Advisory Service warns that opting out could mean losing valuable retirement benefits.
If you are an 'eligible jobholder', your employer must pay pension contributions into the auto-enrolment scheme - and so must you (unless your employer has agreed to meet the full cost without any contribution by you.)
The Pensions Advisory Service publishes information about minimum contribution levels on its website. Contributions are based on a percentage of your wages. From April 2019, the minimum amount put into your pension pot is usually 8% of qualifying earnings, of which at least 3% must come from your employer (leaving you to pay 5%, which may include tax relief). There is nothing in the rules to stop you or your employer making higher contributions.
If your employer needs to make any changes to its existing pension scheme to comply with pension auto-enrolment, they must give you the details and explain all the options.
Exclusions from auto-enrolment
If you are self-employed, pensions auto-enrolment does not apply to you. But you can still join NEST, the workplace pension set up by the government. NEST stands for National Employment Savings Trust.
If you earn under what is called the 'lower qualifying earnings threshold' (£6,136 a year for the 2019-20 tax year), perhaps because you work part time, your employer doesn't have to make a minimum contribution for you. You can still ask to join your employer's workplace pension, but your employer isn't obliged to automatically enrol you.
Another reason why you might not be automatically enrolled is if you are under 22 or over state pension age.
The rules also allow your employer to 'postpone' offering you a pension scheme for up to three months from when you start work. This means that if you're with an employer for a very short period, you may not be offered auto-enrolment even if you would otherwise qualify. You can find out more about this and about other features of auto-enrolment from Auto-enrolment page of the Low Incomes Tax Reform Group website.
There is more information and free specialist advice about pensions auto-enrolment on the website of the Pensions Advisory Service.
Pensions may not be on your mind when becoming a new parent, but there are some key points to be aware of when taking parental leave.
You should stay a member of your workplace pension scheme while you are on parental leave (maternity leave, adoption leave, paternity leave and shared parental leave). Pension contributions carry on throughout any paid parental leave. Pension contributions usually stop during periods of unpaid leave (for example, the last 13 weeks of additional maternity leave).
Your pension contributions must be worked out as a percentage of your actual earnings while on leave. For example, during any weeks when you get only statutory maternity pay (SMP), your monthly pension contribution should be calculated based on your SMP. By contrast, your employer's contributions must continue to be based on your pensionable earnings before you went on leave.
The whole period you spend on maternity, adoption, paternity and shared parental leave counts towards your pensionable service.
You can find out more about your pension rights while on parental leave from the Pensions Advisory Service.
A change in the identity of your employer can have important implications for your pension.
Examples are if:
- the organisation you work for is sold or merges with another business;
- the service contract you are working on change hands on a re-tender;
- the service contract is outsourced or brought back in-house.
All these events are known in law as 'TUPE transfers'. They are all outside your control but they can all impact on your pension.
TUPE stands for the Transfer of Undertaking (Protection of Employment) Regulations 2006.
Your employer is legally required to tell you in advance and in writing about the date of the transfer (this is the date your employer changes). They must also warn you about any consequences for your pension.
If your employer wants to make any changes because of the transfer, for example changing pension contribution rates or payment dates, you have the right to be consulted in advance, and the proposals must be explained clearly and in writing.
No important changes to your contract terms concerning your pension should ever be made without your consent, preferably given in writing.
Your employer must also consult over some types of change to a pension scheme. The Pensions Regulator can impose hefty fines if your employer does not consult.
Speak to the CSP if you are worried about the impact of a TUPE transfer - or any other threatened changes to your pension.
TUPE is complicated, but here are the key points:
- Benefits you've already built up in your workplace pension pot are not impacted by TUPE, but there are important rules about what your new employer must contribute moving forward.
- These rules are different depending on whether you belong to a public service pension scheme such as NHS Pensions, or a private sector defined benefit or defined contribution scheme.
- Rights under occupational (workplace) pension schemes are excluded from any TUPE transfer. Unlike other important contract terms such as your pay rate, they will not transfer automatically to your new employer on a TUPE transfer. Nevertheless, your new employer must meet minimum standards. If you are concerned about this go to the website of the Pensions Advisory Service which provides a helpline.
- Not all pension promises by your old employer are excluded from any TUPE transfer. In particular, a promise by your old employer in your employment contract to pay regular contributions into your personal or stakeholder pension will normally transfer to your new employer. If you are unsure, get some specialist advice from one of the sources identified in this briefing as soon as possible.
If your job is outsourced from the NHS
If your job is compulsorily transferred out of the NHS to the private or voluntary sector, you need to know about an important agreement known as New Fair Deal for Pensions.
Broadly speaking, under New Fair Deal, any public service employee whose job is compulsorily transferred out of the NHS under TUPE retains their membership of the NHS Pension Scheme, as long as they meet the eligibility criteria and continue to perform NHS services.
Fair Deal also covers any later transfer to another private or voluntary sector provider (sometimes called 'second generation' outsourcing), as well as bringing NHS services back in-house.
Anyone who reaches state pension age on or after 6 April 2016 gets the new flat rate state pension. As at April 2019, this is £168.60 a week (the amount changes every year).
What you get depends on your national insurance record and on whether you were ever 'contracted out' of the 'additional state pension' during your working life. (It stopped being possible to 'contract out' of the state pension on 6 April 2016.)
You need 35 full years of national insurance contributions to get a full new state pension (and 10 years for any pension at all). You can find out how much pension you will get - and check for gaps in your national insurance record - by applying for an online state pension statement.
If you have gaps you may be able to plug some or all of them by making voluntary national insurance contributions. Don't delay looking into this, as you can usually only go back six years.
The state pension age is gradually rising for men and women. It will reach 66 for both sexes by October 2020 and further increases are planned. Charity Age UK has information about the planned increases to the state retirement age.