If you work in the private sector and you have a workplace pension scheme then it may be a group personal pension (GPP).
In this guide we take a closer look at group personal pensions. We also answer common questions like “what are the charges for a group personal pension? and “what will happen to my group personal pension if I change jobs?”.
What is a group personal pension?
A group pension pension is a workplace pension scheme that’s arranged by your employer. It’s a type of defined contribution pension where you build up a pension pot over time and use those savings to fund your retirement. Although it’s arranged by your employer, you have a contract directly with the pension provider.
How do they work?
Group personal pensions are a type of workplace pension. They work a bit like a private pension because they are run by the pension company and your contract is directly with the pension company. Like other workplace schemes, employers and employees each contribute to the group personal pension.
Your employer will give you details of the minimum contribution level and their contribution when you join as an employee. Under auto-enrolment rules, employers must contribute at least 3% and employees contribute at least 5% of your qualifying earnings.
You will also get tax relief on your pension contributions from the government to top up your savings.
What fund choices do I have?
Most group pension pensions include a range of fund choices. Your pension contributions will be saved into the default fund if you don’t make any selection.
The default fund is often a lifestyle fund where your money will be invested in a mixture of stocks and shares, gilts, bonds, property and cash. Your investments will be gradually moved into less risky choices as you get towards retirement.
Most pension providers also allow employees to choose their own investment funds. You can invest in a range of funds including global equities, UK equities, commodities and emerging markets.
What will happen to my group personal pension if I change jobs?
If you move jobs then your group personal pension will remain invested and won’t be closed. You should check to see if any of the charges have changed. Because the original group pension scheme was set up between your employer and the pension company, fees may be different once you have left the company.
You can carry on contributing to the pension scheme or you can leave the scheme invested and stop contributing.
What are the benefits of joining a group personal pension?
The benefits of joining your workplace group pension scheme are that your pension pot will grow quicker due to your employer’s contributions. Auto-enrolment rules mean that your employer will contribute at least 3% of your qualifying earnings.
You’ll also receive tax relief on your pension contributions. If you pay basic rate tax then your contributions will be topped up by the government by 20%. If you’re a higher earner then your contributions will receive a 40% boost from tax relief.
What are the charges for a group personal pension?
Pension fees usually include an annual management charge to cover the cost of running the pension scheme. There may be additional fund charges for some funds within the scheme.
The charges for a group personal pension may be lower than a personal pension. This is because they are negotiated between your employer and the pension company. Workplace pension fees are also capped at 0.75% of the investment. This cap only applies if you’re invested in the default pension fund within your scheme.
Most fees are charged as a percentage of the total amount invested in your pension pot. The fees will be automatically taken from your pension pot. This means they’ll already be taken into account when you look at the performance of your pension funds.
What is the difference between a GPP and a workplace pension?
A group personal pension is a type of workplace pension.
Other types of workplace pension include defined benefits schemes (where the pension you receive is fixed and linked to your salary), stakeholder and group self-invested personal pensions. Some employers will also contribute to a private pension.
Is a group personal pension a money purchase scheme?
Money purchase scheme is an umbrella term that refers to any defined contribution scheme, including group personal pensions. These are pensions where you save up an investment pot to use for retirement.
Money purchase schemes or defined benefit schemes are usually invested in the stock market. This means that the value of the investment pot may fluctuate with the value of the stock market. It is also possible to choose lower-risk funds such as cash, gilts or bonds.
Where are the funds invested in a GPP?
When you first join the group personal pension, many pension providers will automatically invest your contributions in the default fund. This is chosen by the investment company and is designed to suit a broad range of people. The default fund is often a lifestyle fund that is invested in a mixture of stocks and shares, cash, gilts and property.
Most pension schemes offer a range of investment options as well as the default fund. You may be able to invest in global stocks, emerging markets or shares of smaller companies. It’s a good idea to get investment advice to check which fund is the most suitable for you. It may be that the default fund is not the best investment choice for your circumstances.
What are the rules for a GPP scheme?
The rules for a group personal pension are the same as other workplace pension schemes. Your employer must offer a workplace pension to all employees who meet the following criteria:
Work in the UK (including seafarers who normally live in the UK)
Don’t have an existing suitable workplace pension scheme
Are between 22 years old and the state pension age
Earn more than £10,000 per year
For employees, there are no rules on how many pension schemes you can join. There are some restrictions on how much you’re allowed to contribute into your pension schemes. The rules are as follows:
You can only contribute a maximum of £60,000 (including employer’s contributions) or 100% of your salary during any tax year, whichever is higher.
If you’re already drawing a pension, this maximum contribution is reduced to £4,000.
If you earn less than £3,600 then you can only contribute a maximum of £3,600 to your pension.
Can I transfer my GPP?
In most cases, you’ll be able to transfer your group personal pension if you change jobs.
Experts recommend getting professional advice if you are thinking of transferring your pension. They will be able to advise you on your long-term options and the scheme that is most suitable for your circumstances.
Group personal pension salary sacrifice
Salary sacrifice means that some of your salary is paid directly into your pension scheme and is not classed as income. This can save you money as you will not have to pay national insurance on your pension contributions.
How can I contribute money to a GPP?
Your employer will invite you to join their workplace pension scheme within 3 months of joining the company.
You can contribute money to your workplace scheme through the PAYE system and your employer will organise your contributions on your behalf.
How do I withdraw money from a GPP?
You can withdraw money from any pension scheme from the age of 55 years old, rising to 57 years old in 2028. You’ll have the choice of one or a combination of these options:
Leave your pension invested and take it later.
Use your pension pot to buy an annuity which is a fixed income that will pay out for life or for a fixed period.
Draw down income from your pension pot when you need it. This can be done in several lump sums or on a regular basis
Withdraw your pension pot in one go.
When you decide to start withdrawing your pension then the first 25% will be tax free. After that you’ll start paying income tax on your pension income as it’s classed as taxable income.
If you’re thinking of starting to withdraw your pension then you should get financial advice to make sure you choose the best option for your circumstances. How you choose to withdraw your pension can also affect the amount of tax you will pay.
How can I calculate my GPP?
Online pension calculators can give an estimate of how much pension you can expect on retirement. You will be asked to give information on the value of your current fund, the level of your and your employer’s contributions, when you want to retire and if you plan to take a tax-free lump sum.
Did you know that a massive 88% of eligible employees are now contributing to a workplace pension? If you’re one of those 88% then you’re on the right track.
If your employer has a group personal pension scheme then it’s worth joining as soon as you can. You’ll start to see your pension pot growing over time, helped by extra contributions from your employer and government tax relief. With hard work and dedication you can look forward to saving up a decent sized pension pot and getting that little bit closer to a comfortable retirement.
Bottom line
If you want to save for retirement, then joining your employer’s group personal pension scheme is a no-brainer. Your savings will get an immediate boost from your employer and the government. For most people, it means that their contributions will at least double straight away. Not a bad rate of return on your investment.
Finder survey: Do you understand how pensions work?
Response
Yes, to some extent
50.58%
No
28.88%
Yes, fully
20.54%
Source: Finder survey by Censuswide of Brits, December 2023
Frequently asked questions
A group personal pension is a type of defined contribution pension. This means that the value of your contributions is set or “defined” but the value of your pension pot might fluctuate. You will save up a pension pot to give you an income in retirement.
Yes, a group personal pension is a type of workplace pension scheme.
The first 25% you withdraw from any pension scheme will be tax free under current rules. The remaining 75% will be taxed just with income tax just like any other type of income.
Stakeholder pensions and group personal pensions are similar but they have slightly different rules.
Stakeholder pensions have a minimum contribution level of just £20 per month. However, you will usually need to contribute more than this to take advantage of your employer’s contributions. Stakeholder pensions also often offer a smaller range of fund choices than a group personal pension.
Pensions are long-term investments. You may get back less than you originally paid in because your capital is not guaranteed and charges may apply. Keep in mind that the tax treatment of your pension and investments will depend on your individual circumstances and may change in the future. Capital at risk.
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Alice Guy is a Suffolk-based finance writer, a busy mum of 4 older kids and a self-confessed personal finance geek. She trained as a chartered accountant with KPMG London before working for Tesco Plc as a business analyst. She loves to write about budgeting, saving, investing and building wealth. See full bio
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