Pensions can play a significant role in the overall value of a job offer, yet they’re often overlooked when candidates compare opportunities. iMultiply sat down with pensions expert Kate Smith to answer 10 common questions about workplace pensions, from employer contributions and salary sacrifice to what happens when you change jobs. Her insights can help jobseekers make more informed decisions and get the most from this valuable employee benefit.
1. What should someone look for when comparing pension benefits between two jobs?
Not all workplace pension schemes are created equal, and the differences can have a significant impact on your long-term financial wellbeing.
When comparing job offers, look beyond the headline salary and consider the overall value of the pension package. A generous pension contribution can add thousands of pounds a year to your total reward package and substantially increase your retirement savings over time.
Key things to compare include:
• The employer contribution rate
• Whether contributions are based on full salary or qualifying earnings only
• Whether the employer offers matching contributions
• Availability of salary sacrifice arrangements
• Pension scheme charges and investment options
• Waiting periods before joining the scheme
• Retirement planning tools, financial wellbeing support and guidance
For many professionals, particularly those in mid-career, pension contributions become increasingly important. While the auto-enrolment minimum provides a good foundation, it is unlikely to deliver the retirement income many people expect.
Minimum contributions
Current auto-enrolment rules require total minimum contributions of 8% of qualifying earnings, with employers contributing at least 3%.
Both employers and employees can contribute significantly more than these minimum amounts.
Perhaps most importantly, pension contributions are highly tax-efficient. An employer offering a stronger pension package can sometimes provide greater long-term value than a higher salary alone.
As a broad rule, individuals seeking a comfortable retirement should aim to contribute around 12% to 15% of earnings throughout their working life, including employer contributions. Those starting later, returning from career breaks or targeting an earlier retirement may need to contribute more.
2. Do I have to wait three months before joining a workplace pension?
Not necessarily.
Some employers use a postponement period of up to three months before automatically enrolling new employees into their workplace pension scheme. Employers often use this for administrative reasons or when recruiting people on short-term contracts.
However, even during a postponement period, employees can usually ask to join earlier. If eligible, they may still benefit from employer contributions from that point.
Before accepting a role, it’s worth asking whether there is a waiting period and whether employer contributions begin immediately or only after formal enrolment.
3. How much difference do employer pension contributions really make over time?
A great deal.
Employer pension contributions are one of the most valuable benefits available to employees because they effectively represent additional pay that goes directly towards your future.
Consider two employers. One contributes 3% of salary and another contributes 10%. For someone earning £60,000 a year, that’s a difference of £4,200 annually before any investment growth is taken into account.
Over a career spanning several decades, the combination of additional contributions and investment growth can translate into tens or even hundreds of thousands of pounds of extra retirement savings.
In most workplace schemes, employees need to contribute themselves in order to receive employer contributions. Opting out typically means giving up part of your total remuneration package.
The earlier contributions are made, the longer investments have to grow. Time in the market is often just as important as contribution levels.
4. Why do some employers offer higher pension contributions than others?
Employer pension contributions often reflect a combination of industry norms, company culture and reward strategy.
Some organisations choose to provide only the statutory minimum contribution required under auto-enrolment legislation. Others use pension benefits as a way to attract, retain and reward talented employees.
Historically, sectors such as financial services, insurance, energy, pharmaceuticals and the public sector have offered more generous pension arrangements. In contrast, industries with tighter margins often provide contributions closer to the legal minimum.
For senior professionals in particular, pension contributions can be a major differentiator between employers. A role with a slightly lower salary but significantly higher pension contributions may provide greater overall value over time.
It’s also increasingly common for employers to structure reward packages differently. One organisation may prioritise salary, while another invests more heavily in pensions and long-term benefits.
5. What does a “good” pension scheme look like from a jobseeker’s point of view?
A strong workplace pension scheme typically combines generous contributions, competitive charges and quality investment options.
Features to look for include:
- Employer contributions above statutory minimum levels
- Contributions based on full salary rather than qualifying earnings
- Matching arrangements that reward higher employee contributions
- Salary sacrifice availability
- Competitive charges
- Well-governed and performing default investment funds
- A range of investment options for different risk profiles
- Digital tools and retirement planning support
- Access to financial education and guidance
For more experienced professionals, it is also worth considering whether the scheme accommodates larger contributions and offers flexibility around retirement planning.
A pension scheme should not simply help you save money. It should help you make informed decisions about your long-term financial future.
6. What happens to your pension when you leave a job?
Your pension remains yours.
When changing jobs, you usually have several options:
- Leave the pension in your previous employer’s scheme
- Transfer it to your new employer’s scheme
- Transfer it into a personal pension, such as a SIPP
If you leave the pension where it is, it will normally remain invested and continue to benefit from any future growth.
People increasingly build up multiple pension pots throughout their careers. While this isn’t necessarily a problem, it can make administration more complicated and increase the risk of losing track of pensions.
Regularly reviewing your pensions and keeping contact details updated is important.If you’ve lost an old pension, the Government’s Pension Tracing Service can help locate.
7. What should candidates ask employers about pensions during the hiring process?
Pensions are a significant part of remuneration, particularly for mid-career and senior professionals, so it’s reasonable to ask detailed questions.
Key questions include:
- How much does the employer contribute?
- Are contributions based on full salary or qualifying earnings?
- Is matching available?
- Does the employer operate salary sacrifice?
- Is there a waiting period before enrolment?
- Can contributions be increased at any time?
- Who is the pension provider?
- What investment options are available?
- What support is available around retirement planning?
- Are there financial wellbeing programmes or access to guidance?
These questions can provide valuable insight into how seriously an organisation views long-term employee wellbeing.
8. What should someone do if they have lots of old pension pots from previous jobs?
First, make sure you know where all your pensions are.
Many people accumulate several pension pots during their careers and some lose track of them entirely. If you think you’ve ‘lost’ some previous pensions you can track them down by using the Government’s pension tracing service. Additionally your pension provider may operate its own pension tracing service.
Once you’ve identified all your schemes, compare:
- Current fund values
- Employer benefits that may remain attached
- Charges
- Investment performance
- Fund choices
Consolidating pensions can make them easier to manage and may reduce overall costs. However, transferring isn’t always the right decision. Some older schemes contain valuable benefits that could be lost if transferred.
It’s worth taking the time to review each pension carefully before making a decision.
9. Is pension consolidation always a good idea?
Not always.
Bringing multiple pensions together can make administration simpler, reduce paperwork and provide a clearer view of your retirement savings.
However, older pensions may contain valuable guarantees, protected retirement ages or other benefits that would be lost on transfer.
Before consolidating, compare the costs, investment options and features of both the existing and receiving schemes.
The simplest option is not always the best one.
10. Can I ask my employer to pay into a different pension provider if I don’t like their workplace pension?
Usually, no.
Most employers will only pay pension contributions into their own workplace pension scheme. This is because the scheme is integrated with their payroll and administration processes, and using multiple pension providers would create additional cost and complexity.
That said, you still have options.
If you’re unhappy with your employer’s pension provider because of the investment choices, charges, online experience or customer service, you could:
- Stay in the workplace pension to continue receiving valuable employer contributions.
- Open a personal pension or Self-Invested Personal Pension (SIPP) separately and make any additional retirement contributions there.
- Transfer old workplace pensions into a pension provider of your choice, if appropriate.
- In some cases, transfer money out of your current workplace pension while remaining an active member, although not all schemes allow this. If you opt-out of your workplace pension scheme you’ll lose the employer pension contribution.
Before deciding, it’s worth looking beyond the provider’s brand name. A workplace pension may offer lower charges, investment funds and employer contributions that would be difficult to replicate elsewhere.
For most employees, opting out of the workplace scheme simply because they dislike the provider is unlikely to be financially beneficial if it means giving up employer contributions.
Next steps
Your pension will likely be one of the most important investments you make in your lifetime. Yet for many people, pensions can feel complex and overwhelming, which means their importance is often not fully considered until retirement is approaching.
We understand. With so much information available, it can be difficult to know where to begin.
The good news is that expert help is available. The Money and Pensions Service offers free, trusted guidance to help you get to grips with your pension and make informed choices about your future. Read more here.
