Workplace Pensions

Employers have to enrol most staff into a pension scheme automatically. If you are aged 22 or over, under state pension age and earning above the annual trigger set by government, your employer must put you in and must pay in on your behalf. Younger workers and lower earners can usually ask to join and still get employer contributions.

The legal minimum is 8 per cent of your qualifying earnings, of which your employer must fund at least 3 per cent. Qualifying earnings are the slice of your pay between a lower and an upper limit, both reviewed each year, so 8 per cent of qualifying earnings is not the same as 8 per cent of your salary. On a £30,000 salary the gap is meaningful, and it catches people out when they later work out what their pot is likely to be worth.

You can opt out. We rarely see a good reason to, because opting out means turning down the employer contribution as well as your own tax relief.

Plenty of employers pay more than the legal minimum, and many will match extra contributions up to a set level. A scheme that pays 3 per cent as standard but 6 per cent if you pay 6 per cent is offering you an immediate uplift on every extra pound. Very few other things in financial planning work like that.

It is worth reading your scheme booklet or asking your HR or payroll contact two questions. Does the employer match additional contributions, and up to what percentage. Is the scheme run on salary sacrifice, which changes how the contribution appears on your payslip and can reduce National Insurance for both you and the employer.

If you have never made a choice, you are in the scheme default fund. Defaults are built to be reasonable for the average member, which means they are not built for you specifically. Two things are worth checking.

• The mix of assets, and whether it fits how long you have left before you plan to take the money.
• Whether the fund automatically moves you into lower risk assets as you approach a target retirement date, and what that date is set to. Many are still set to age 65 by default, and many people no longer retire then.

That last point matters more than it sounds. A lifestyling fund that de-risks towards buying an annuity will move you into bonds and cash in the years before your target date. If you actually intend to stay invested and use drawdown, that shift may not suit you.

Most people who come to us in their fifties have three or four pots scattered across former employers. Some are small, some are older contract based schemes with charges that look expensive by current standards, and one or two may be defined benefit schemes that are worth considerably more than the member realises.

Bringing pots together can make them easier to manage and can reduce what you pay in charges. It is not automatically the right move. Older policies sometimes carry benefits that disappear on transfer, such as a guaranteed annuity rate or protected tax-free cash above 25 per cent, and defined benefit schemes should never be given up lightly. We check for those features before recommending anything.

If you have genuinely lost track of a pension, the government’s Pension Tracing Service will find the scheme administrator for you free of charge.

Somerset is full of small businesses with a handful of staff and a workplace scheme that was set up quickly to meet the enrolment deadline and never revisited. We help employers review the scheme they have, deal with re-enrolment duties, and explain the arrangement to staff in language that means something to them. Employer pension contributions are normally an allowable business expense for corporation tax, which is often the deciding factor for owner directors comparing salary with pension.

Heritage is a family run firm in Taunton, established in 2000 and directly authorised by the Financial Conduct Authority under firm reference 624976. We are independent, which means our recommendations are based on the whole of the relevant market rather than a restricted panel.

A workplace pension review with us usually starts with gathering the paperwork on every pot you hold, then working out what income those pots are on track to produce and what would need to change to close any gap. If the honest answer is to leave your scheme alone and increase your contribution by two per cent, that is what we will tell you.