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Company Pension FAQs - Part 1

22 June 2016 - Posted by ebaxter

At what age can I claim my company pension?

This will depend on the retirement age at your company. Usually this is 60 but it can vary from company to company so speak to your HR team to find out more.

What’s the difference between a company pension and the State Pension?

The State Pension is an amount of money which most people will receive from the government once they reach State Pension age. You contribute to this pension pot through National Insurance payments. A company pension is arranged by your employer and a portion of your monthly pay packet will go towards your pension pot. Some employers will match this amount or pay a percentage towards your pension. If you are automatically enrolled into a workplace pension under the 2008 Pension Act your employer will pay at least 1% of your earnings.

When is the company pension auto enrolment date?

The latest date to be auto enrolled into a company pension scheme is February 2018. Auto enrolment is being introduced gradually, starting with the biggest companies in the UK. A company’s staging date depends on the number of people they employ. Your accounts or HR department will be able to tell you the date auto enrolment will take place at your company.

Can I automatically enrol into a company pension?

Under the 2008 Pensions Act, every UK employer must auto enrol staff members into a company pension scheme. Once enrolled, your employer will contribute towards your pension. To be automatically enrolled you will need to be over 22 but under the State Pension age, you’ll need to earn at least £10,000 a year and work in the UK. The amount your employer pays in will depend on your ‘qualifying earnings’ (your salary before tax or the amount you earn before tax between £5,824 and £43,000) but the amount will be at least 1% of your ‘qualifying earnings’.

Is it compulsory to have a company pension?

No, it’s not compulsory to have a company pension. Most companies which offer pensions will give you the choice when you start work as to whether you wish to join the company scheme or not. If you choose to join then a percentage of your wage will be automatically paid into the pension pot from your monthly salary. Most companies will also pay in to your pension pot as well.

Over the next few years automatic enrolment pensions will be introduced. This is a new law whereby every employer will automatically enrol workers into a company pension scheme. The only exceptions are employees who are under 22 or over the State Pension age, employees who earn less than £10,000 a year and employees who don’t work in the UK. Although enrolment into the scheme is automatic, you will have the option of opting out of the scheme.

What are the benefits of a company pension?

There are numerous benefits to contributing to a company pension. Firstly, paying into a pension is tax efficient as the amount you pay in will be deducted from your salary before any tax is taken. Some companies will contribute to your pension, which means they will contribute to your pension pot and you’ll gain money for free. You will be able to access a pension pot before retirement age which will be vital if you have to retire early due to ill health as the State Pension can only be accessed once you reach retirement age. Your dependants will be entitled to your pension when you die, so you can have peace of mind that they will have access to this money.

How does a company pension contribute to tax relief?

Tax relief refers to a deduction in the amount of tax you will pay on your income during a tax year, as the amount will be deducted from your income before your personal tax allowance is taken away. The amount of income left after deducting anything you can claim tax relief on is known as your ‘taxable income’.

A pension is an efficient way to reduce the amount of tax you pay on your income. When you pay money into your pension you can gain tax relief as the amount you contribute to your pension will be deducted from your income before your tax is calculated. There is more detailed information on tax and private pension contributions on the Government website.

Do I pay National Insurance Contributions (NIC) on my company pension?

You won’t have to pay NIC when you receive your company pension, whether you receive it as a lump sum or as regular payments. If you plan to work after retirement age, when you reach retirement age you will no longer have to pay National Insurance Contributions on your income.

If I’m working as a contractor, am I entitled to a company pension?

If you are a contractor, you will work for yourself so won’t receive a company pension from the companies you work for. However, you are entitled to a pension from your own company, even if you are self-employed. It’s a good idea to pay into a pension fund as this is an efficient way to reduce the amount of tax you pay as pension contributions are tax deductible.

If you are the sole employee of your own company then you won’t need to sign up for the new auto enrolment pension. However, if you run a limited company or if you have additional employees (even if it’s only one person) then you will need to ensure your employees are auto enrolled.

How do I trace old company pensions?

The Government’s Pension Tracing Service registers all workplace pension schemes so they should be able to locate your scheme. If for any reason they can’t locate it, then try the National Insurance Contribution Office next. If you’re still unsuccessful then contact the Pensions Advisory Service who should be able to help you further.

How do I join a company pension scheme?

When you join a new company which provides a pension scheme, you will usually be asked if you wish to join this scheme. If you don’t choose to join the scheme straightaway, you should be able to join at a later date. Speak to your HR department or manager to find out more about the terms and conditions around your workplace pension scheme.

Will my company pension contributions effect a mortgage application?

This will depend on the mortgage provider and how strict they are with their affordability criteria. Some lenders may class pension contributions paid by salary sacrifice as taking a cut in your monthly wages and therefore you could be classed as having a lower income. To ensure you get the best deal, speak to a mortgage advisor who will be able to recommend a mortgage suitable for your specific requirements.

Can I claim my pension if I’ve been at a company for a short amount of time?

This depends on the type of pension you have. If it’s an occupational pension and the benefit is salary related, then a member may be entitled to a short serve refund of their own contributions if they have completed less than 2 years qualifying service. This refund is subject to tax.

If the occupational pension is not salary related, then from 1st October 2015 the scheme must provide a short service refund where leavers have at least 30 days qualifying service.

For personal & Stakeholder pensions a refund will only apply in certain circumstances as these types of pensions have never been able to refund contributions. Now for instance if a member opts out of a scheme used for Auto-Enrolment within the 30 day opt out period they can claim a refund.

Can I take my company pension as a lump sum and is this taxable?

Generally a lump sum of 25% can be taken with anything further being taxed at the member’s marginal rate of tax.

What are company pension liabilities?

Companies are now required to set up a workplace pension for all eligible employees and make contributions to these plans as prescribed by the legislation.