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Money, tax and benefits

Money, tax and benefits

Personal pension plans through your employer

If there are five or more employees where you work, your employer is normally required to offer you the chance to join a pension scheme. They must provide access to a stakeholder pension unless they offer either an occupational or an alternative suitable personal pension scheme.

Employee rights to a stakeholder pension

If you earn more than the National Insurance lower earnings limit (£87 a week in the 2007-2008 tax year) and there are five or more employees where you work, your employer must normally offer you access to a stakeholder pension unless:

  • they offer you a company (occupational) pension scheme
  • they offer an alternative personal pension scheme with an employer contribution equivalent to at least three per cent of your pay

A stakeholder pension is a type of personal pension which meets standards set by the government.

For instance, stakeholder pensions must offer:

  • capped charges – the amount the pension provider can charge in annual management fees is restricted
  • low minimum payments – stakeholder pensions allow you to contribute amounts of as little as £20
  • flexibility – you can pay into the scheme when it suits you

If your employer is obliged to offer you access to a stakeholder pension you must be able to pay into your stakeholder pension directly from your wages through the company's pay system.

Your employer is not obliged to pay anything into your stakeholder pension themselves or to pay any administration charges charged by your stakeholder pension provider.

Companies' obligations to provide access to stakeholder pensions are regulated by The Pensions Regulator and you can find out more information on its website or from the helpline 0870 6063636 (9.00 am to 5.00 pm, Monday to Friday).

Alternatives you may be offered

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 is obliged to contribute the equivalent of 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.

Group personal pensions

Your employer may arrange for a pension provider to set up a personal pension arrangement through the workplace. A personal pension arranged in this way is called a ‘Group Personal Pension Plan’ (GPPP).

A GPPP 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 GPPP arranged by your employer:

  • your employer will normally contribute to your pension – and if the GPPP 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 GPPP 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 may 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 and 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.

Helplines 0845 6012923 (Monday to Friday 9.00 am to 5.00 pm)

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