Pensions provide a safety net when employees are no longer at the age where they want to or can work. Without a pension, people who should have the means to retire and enjoy their lives will have to take up work to survive. With the creation of pension schemes, people can enjoy their lives with less worry about where money will come from. Insurance provides comfort for those who are working – it gives them some certainty that if something does occur, they will be able to provide for their families in the event of an accident, and ensure that their life is less affected by sudden changes. Both combined provide some assurance and stability to workers that if anything doesn’t go as planned, then there is a safety net available.
For reference, pension schemes that pay money depending on how much you put into them during your period of work are known as defined contribution pensions. Pension schemes which payout based on what your salary is, and how long you have been part of the pension scheme are known as defined-benefit pensions.
Pensions are important when you retire – it gives you a set of funds regularly after retirement so that you can pay your bills and continue to do the things you love.
Workplace pensions are a legal requirement of businesses – they must automatically enrol you into their pension scheme once you meet certain criteria.
These criteria, according to the Pensions Act 2008, are between 22 and 68 years old and earns more than £10,000 within the pay reference period (this is typically a year). To meet this you will need to earn at minimum £120 a week, £520 a month or £480 over 4 weeks.
If you fit these criteria, then your business must include you in their pension scheme. The terms and conditions of the pension scheme vary – they may be defined contribution or defined benefit pensions, depending on what is offered at your place of work. Alternatively, if you do not classify for the pension scheme using the criteria above, you may choose to enrol into it – your employer cannot stop you from doing so.
Employers are obligated to pay a minimum amount of money into this type of pension every month. They will allow you to leave the pension scheme (‘an opt-out) if you want. They will also refund you the money you may have added to your pension if you opt-out within 1 month.
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