What is a group personal pension?

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 convert into an income at retirement.

Group personal pension – How does it work?

In a group personal pension, the scheme is run by a pension provider that your employer chooses, but your pension is an individual contract between you and the provider.

The provider claims tax relief at the basic rate on your contributions and adds it to your fund. If you’re a higher or additional-rate taxpayer, you’ll need to claim the additional rebate through your tax return.

Your pension pot builds up using your contributions, any contributions your employer makes, investment returns and tax relief.

How your pension grows while you are working

The fund is usually invested in stocks and shares, along with other investments, with the aim of growing the fund over the years before you retire. You can usually choose from a range of funds to invest in. Remember though that the value of investments may go up or down.

If you need help with deciding how to invest your contributions, read out guide Pension investment options – an overview.

Your options when you retire

You can access and use your pension pot in any way you wish from age 55. You can:

  • Take your whole pension pot as a lump sum in one go. A quarter (25%) will be tax free and the rest will be subject to tax at your normal tax rate. Bear in mind that a large lump sum could tip you into a higher tax bracket for the year.
  • Take lump sums as and when you need them. A quarter of each lump sum will be tax free and the rest will be subject to tax at your normal tax rate. Bear in mind that a large lump sum could tip you into a higher tax bracket for the year.
  • Take a quarter of your pension pot (or of the amount you allocate for drawdown) as a tax-free lump sum, then use the rest to provide a regular taxable income.
  • Take a quarter of your pot as a tax-free lump sum and then convert some or all of the rest into a taxable retirement income (known as an annuity).

The size of your pension pot and amount of income you get when you retire will depend on:

  • how much you pay into the fund
  • how long you save for
  • how much, if anything, your employer pays in
  • how well your investments have performed
  • what charges have been taken out of your fund by your pension provider
  • how much you take as a cash lump sum(s)

When you retire, your pension provider will usually offer you a retirement income (an annuity) based on your pot size, but you don’t have to take this and it isn’t your only option.

If you’re unsure about your options and how they work, you can get free and impartial guidance from Pension Wise, a service run by The Pensions Advisory Service and Citizens Adviceopens in new window.

But the Pension wise service can’t tell you which option is best for you. If you’re at all uncertain about what to do, get advice from a regulated financial adviser.

You can find FCA registered financial advisers who specialise in retirement planning in our Retirement adviser directory.

Find out more about your options with our Retirement income options tool.

What you need to think about

Some employers will also contribute to the workplace pension they run, meaning you will 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 you should consider joining one of these schemes if you can.

The amount your employer puts in can depend on how much you’re willing to save, and may increase as you get older. For example your employer may be prepared to match your contribution on a like-for-like basis up to a certain level, but could be more generous.

Changing jobs

If you change jobs, your group personal pension is usually automatically converted into a personal pension and you can continue paying into it independently.

However, you should check to see if your new employer offers a pension scheme. You may find you’ll be better off joining your new employer’s scheme, especially if the employer contributes. Compare the benefits available through your employer’s scheme with your group personal pension.

If you decide to stop paying into a group personal pension, you can leave the pension fund to carry on growing through investment growth – check to see if there are extra charges for doing this.

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