What are workplace pensions?

Definition of workplace pensions

Workplace pensions are pension schemes that employers must set up to enable employees to save for their retirement.

To set up a pension scheme, an employer will approach a pension provider, such as a bank or building society. If you're an employer and not sure which pension scheme to choose, speak to an Independent Financial Advisor (IFA) for advice. Your accountant may be able to recommend an IFA but is unlikely to be authorised to advise you him/herself on what pension scheme to choose.

Workplace pension contributions

Once an employer has set up a pension scheme, each pay period the employee and the employer will both pay a certain amount into the pension scheme. That will typically be a percentage of the employee's wages and is called the pension contribution.

The employer will keep back the employee's pension contribution from their wages, will add their own pension contribution to it, and then pay this amount over to the pension provider.

Pension investment

The pension provider will invest this money in accordance with the chosen scheme. For example, some pension schemes invest only in shares in companies with ethical credentials and will avoid investing in certain sectors such as tobacco companies or weapons manufacturers. Other schemes invest only in government-backed securities.

Auto-enrolment for workplace pensions

Under auto-enrolment it's now become compulsory for nearly all employers to set up pension schemes. Check out our guide to auto-enrolment for small businesses for more information.