Everything you need to know about workplace pensions

Stephen Metcalf
Financial Planning
Workplace pensions, pot of money

Workplace pensions are a crucial aspect of financial planning in the United Kingdom, providing individuals with a means to secure their financial future during retirement. For employers and employees alike, understanding how workplace pensions work is essential. In this article, we will provide you with a comprehensive overview of workplace pensions, answering common questions and addressing key topics related to employers' and employees' pension contributions.

Workplace pensions, pot of money

How Does a Workplace Pension Work?

A workplace pension is a retirement savings plan facilitated by your employer. It is a long-term savings vehicle designed to provide you with financial security once you retire. As an employee, you contribute a portion of your earnings into this pension scheme, and your employer also makes contributions on your behalf.

The funds you contribute are typically invested in various financial instruments, such as stocks, bonds, and other assets, with the aim of growing your savings over time. The goal is to accumulate a sufficient pension pot that can sustain you throughout your retirement years.

Who Pays into a Workplace Pension?

Both employers and employees contribute to workplace pensions. In the UK, the government has introduced rules that require employers to automatically enrol eligible employees into a workplace pension scheme. This means that, as an employee, you are automatically enrolled unless you choose to opt out.

Employers are responsible for deducting a portion of your salary, which you and they contribute to your pension pot. The total contribution is based on a percentage of your earnings, which we'll discuss in more detail shortly.

How Long Does a Workplace Pension Last?

A workplace pension lasts as long as you need it to during your retirement years. The duration of your pension income depends on various factors, including your retirement age, the size of your pension pot, and the choices you make regarding how you access your pension savings.

Typically, people retire around the age of 65, but the UK government has increased the state pension age in recent years. It's essential to plan for your retirement age carefully to ensure your pension income can support you throughout your retirement.

What Happens to Your Workplace Pension When You Retire?

When you reach the retirement age you've chosen, you have several options for accessing your workplace pension savings. You can use the funds to purchase an annuity, which provides a regular income for life, or you can opt for flexible withdrawal options, such as drawdown, that allow you to take money out as you need it.

Your pension income will be subject to taxation, so it's vital to consider the tax implications of your choices and plan accordingly.

How Much Do I Pay into My Workplace Pension?

The minimum contributions for workplace pensions are determined by the UK government and are subject to change. As of my last knowledge update in January 2022, the minimum contribution percentages were as follows:

  • Employees: A minimum of 5% of their qualifying earnings.
  • Employers: A minimum of 3% of the employee's qualifying earnings.

These percentages are based on a specific portion of your earnings, known as "qualifying earnings." Be sure to check the most up-to-date contribution rates and limits to ensure compliance with the current rules.

How Lovewell Blake can help with Workplace Pensions

Our experienced team can help you and your employees plan for the future. As Independent Financial Planning advisers we can investigate all of the options available to you. 

Find out more

Wide-ranging tax planning and compliance services for individuals seeking advice and guidance from our team of experienced and highly qualified professionals.

Friendly and coherent advice and guidance on accounting and tax matters for small business owners including those starting out for the first time.

Established businesses requiring accounting and tax compliance services, forward thinking tax planning advice and the support to help your business succeed.

Our full range of enhanced corporate services aimed at large companies and those requiring audit, assurance, corporate tax advisory and diverse tax planning services.



This is a test definition