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Wednesday, 3 October 2012

Personal pension plans through your employer

Most employers are required to offer their employees the chance to join a pension scheme. If a company pension is not provided then this would normally be a stakeholder or alternative personal pension. Find out what your employee rights are and what you are entitled to.

Employee rights to a stakeholder pension

Your employer must offer you access to a stakeholder pension, so long as both the following apply:

  • you earn more than the National Insurance lower earnings limit (£107 per week for tax year 2012-2013)
  • there are five or more employees where you work

Your employer does not have to offer you access to a stakeholder pension if one of the following applies:

  • you are able to join a company (occupational) pension scheme
  • you are able to join an alternative personal pension scheme where your employer pays in an amount equal to at least three per cent of your pay

These rules will change in 2012.

What your employer has to do

Your employer must allow you to pay into your stakeholder pension directly from your wages through the company's pay system.

Many employers are prepared to pay into your stakeholder pension and to pay the cost of the stakeholder pension provider’s administration charges. However, they are not required by law to do so.

You don't lose the money your employer has already paid in if you:

  • leave your employer
  • transfer your money out of the stakeholder pension scheme to another scheme

You don't lose the money your employer has already paid in if you either:

  • leave your employer
  • transfer your money out of the stakeholder pension scheme to another scheme

The requirement for employers to provide access to stakeholder pensions are regulated by the Pensions Regulator.

Your employer offers you a personal pension

If your employer offers you an alternative personal pension instead of a stakeholder pension, its terms must meet minimum standards set by the government.

Your employer must contribute at least three per cent of your salary if they are offering it as an alternative to a stakeholder pension.

But they don't have to pay the administration costs of your pension scheme.

If you leave your employer, or transfer your money out of the pension scheme to another scheme, you don't lose the money they have contributed.

Your employer offers you a group personal pension plan

Your employer may arrange for a pension provider to set up a personal pension arrangement through the workplace. A personal pension (including a stakeholder pension) arranged in this way is called a Group Personal Pension (GPP). Although they are sometimes referred to as company pensions, they are not run by employers and should not be confused with occupational pensions.

A GPP is a type of personal pension where your employer chooses the financial provider on your behalf.

There can be some advantages to contributing to a GPP arranged by your employer:

  • your employer will normally contribute to your pension – and if the GPP is offered as an alternative to a stakeholder pension your employer must contribute an amount equal to at least three per cent of your basic salary 
  • if your employer has contributed to your pension and you leave your employment you do not lose the money they have contributed
  • your employer will normally deduct your contributions from your pay and send them to your pension provider
  • a GPP is negotiated with the pension provider on behalf of a group of people and your employer may be able to negotiate better terms than you would get individually – for instance, they may negotiate reduced administration costs
  • you will usually be able to continue making contributions to your pension if you change employers

You are likely to lose some of these benefits if you leave your employer. For instance, they are unlikely to make any further contributions to your pension. Also, you may have to pay higher administration costs to the pension provider.

You can ask The Pensions Advisory Service for information and advice on personal and company pension schemes.

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