WTF is a workplace pension scheme!?
Updated: Aug 22
If, like me, you've recently become a fully-fledged adult and got yourself a job; you've probably been bombarded with hundreds of forms to sign, one of which will be in relation to a 'workplace pension scheme' - but WTF is this!?
WTF is a workplace pension?
All UK employers are required to offer workplace pension schemes, which you'll be automatically enrolled into if you're an 'eligible jobholder'. To qualify, you must to meet the following criteria:
Aged between 22 and state pension age (if you'd like an early onset midlife crisis, you can find out your state pension age here);
Earn over the earnings threshold (which, you'll be pleased to hear, at only £10k a year, is significantly less than that required to qualify as an eligible bachelor); and
Work in the UK and have a contract of employment (I hate to say it, but this means the Government doesn't class being a 'social media influencer' a legit job - #sorrynotsorry).
Once you're enrolled, which will usually be as soon as you've passed your probation, a percentage of your pay will be put into your workplace pension account each payday. This is topped up with money from your boss and the Government (that's right, free cash money b!*@h).
But why the f@*k would I want to lock my money away?
If you used the state pension age calculator I mentioned above, you're probably thinking "why the f@*k would I want to lock away my money for the next 50-odd years when I could be spending it on unnecessary ASOS purchases like this cheeseburger head mask?"
And it's this exact question that has led to many people deciding to 'opt-out' of their workplace pension scheme. Granted, by doing this, you'll receive some extra dough each payday allowing you to splurge out on a boujee bottomless brunch, but you'll be missing out on that all important free cash from your boss and likely end up home alone whilst your OAP friends are living it large at the local bingo hall.
If you're struggling to understand the concept of free money, check out the sexy graph I made below. This assumes you're earning £24k per year and contributing the minimum amount. You would put £100 (5%) into your pension each month, your boss would contribute £60 (3%) and the Government would top this up with a further £25. That's over a grands worth of free cash each year!
If you've chosen to remain enrolled in your workplace pension - please take a moment to appreciate all of that extra dough you're earning! If, however, your soya flat white addiction has led you down the dangerous path of opting out of your pension, I would urge you to opt back in A$AP Rocky to take advantage of that free cash (note that if you have opted out, you will be automatically re-enrolled within three years).
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Note the information contained within this blog is in relation to defined contribution ("DC") schemes - I'll explain what these are in my next blog!
P.S. can we please take a moment to appreciate that the cheeseburger head mask is sold out!?
Now for the serious part: my blogs are for educational purposes only; they do not constitute financial advice. Please consult with an independent financial advisor for advice on your specific circumstances.