Group personal pensions (GPPs) are a type of defined contribution pension which some employers offer to their workers. As with other types of defined contribution scheme, members in a GPP build up a personal pension pot, which they then take money from when they retire.
Group personal pension – how does it work?
A group personal pension scheme is run by a pension provider that your employer chooses. But your pension is an individual contract between you and the provider.
Your employer will normally contribute and you’ll often be asked to contribute too.
Your employer sets the contribution amounts. They’ll give you details when you’re asked to join the scheme.
There are minimum contribution amounts though.
You’ll get tax relief on contributions you make to a group personal pension. This is money that would otherwise have gone to the government as tax.
In a group personal pension, the provider will always claim tax relief on your contributions from the government at the basic rate. They’ll then add this to your pension pot.
If you’re a higher or additional-rate taxpayer, you’ll need to claim the additional relief through your tax return.
Your pension pot builds up using:
- your contributions
- any employer contributions
- investment returns
- tax relief.
How your pension grows while you’re working
Your pension pot is usually invested in stocks and shares, along with other investments. The aim is to grow your pension pot over the years before you retire.
There’s no tax paid on the growth or income from investments in your pension pot.
You can usually choose from a range of funds to invest in. So you can choose one, or a number of funds, that best meet your needs or circumstances.
If you don’t choose when you first join the pension, your money will be invested in a fund chosen by the pension scheme. It might be referred to as a ‘default’ fund and will be designed to suit a broad range of people.
If your money is invested in a default fund, it might be put into a lifestyle fund. This is a retirement fund that works by moving your money into lower-risk investments as you approach retirement.
Be aware though that the value of investments might go up or down.
If you need help deciding how to invest your contributions, read our guide Pension investment options – an overview
The size of your pension pot, and amount of income you get when you retire, will depend on:
- how long you save for
- how much you contribute into the pension
- how much, if anything, your employer contributes
- how well your investments have performed
- the level of charges your pension provider takes.
Taking money from your pension
From the age of 55 (rising to 57 in 2028), you have the choice of accessing your pension pot through one of the options below, or a combination of them.
Depending on your age and personal circumstances, some or all of them could be suitable for you.
Your main options are:
- Keep your pension savings where they are – and take them later.
- Use your pension pot to buy a guaranteed income for life or for a fixed term – also known as a lifetime or fixed term annuity. The income is taxable. But you can choose to take up to 25% (sometimes more with certain plans) of your pot as a one-off tax-free lump sum at the start.
- Use your pension pot to provide a flexible retirement income – also known as pension drawdown. You can take the amount you’re allowed to take as a tax-free lump sum (normally up to 25% of the pot). You can then use the rest to provide a regular taxable income.
- Take a number of lump sums – usually the first 25% of each cash withdrawal from your pot will be tax-free. The rest will be taxed.
- Take your pension pot in one go – usually the first 25% will be tax-free and the rest is taxable.
- Mix your options – choose any combination of the above, using different parts of your pot or separate pots.
Got questions about how your pension can be paid?
If you need help making sense of how and when you can access your pension pot, you can speak to a Pension Wise specialist. Pension Wise is a government service that offers free, impartial guidance over the phone.
What you need to think about
Most employers will also contribute to the workplace pension they run. This means you’ll lose out on their contributions if you decide not to join.
Unless your priority is dealing with unmanageable debt or you really can’t afford it, it’s worth joining if you can.
The amount your employer puts in can depend on how much you’re willing to save, and might increase as you get older.
For example, your employer might be prepared to match your contribution on a like-for-like basis up to a certain level, but they could be more generous.
This is free money from your employer, so if you can afford the extra contributions it’s well worth taking up.
Check our Pension calculator
You can get an estimate of the income you'll get when you retire with our Pension calculator
Changing jobs
If you change jobs, your pension pot will remain invested – and hopefully continue to grow.
You can continue contributing to it independently of your previous employer if you want to. However, check to see if there are charges for this change.
If you’re starting a job, your new employer will usually have to enrol you in their pension scheme.
It’s worth checking this before you continue saving into any others you have. This is because you’ll usually be better off joining your new employer’s scheme, especially if the employer contributes.
