If your employer offers a workplace pension plan, it's very likely to be a better deal than taking out an individual plan on your own, even though the reason isn't always well understood. The key lies in something no individual plan can offer on its own: the employer's own contribution.
What an employer pension plan is
It's a pension plan set up by a company (or by a group, such as a professional sector) for its workers, in which, in addition to any contributions the worker themselves can make, the company also makes contributions on their behalf, as part of its compensation or benefits policy.
The big advantage: the employer's contribution is "extra money"
The contribution your employer makes to your workplace plan is, in practice, a form of additional compensation that wouldn't be part of your salary if that plan didn't exist. It's money you receive exclusively for taking part in the workplace plan, something no individual pension plan can replicate, since in an individual plan the entire contributed capital comes out of your own pocket.
Different contribution limits
In recent years, the rules have considerably reduced the contribution limit eligible for tax relief on individual plans, while keeping a considerably higher limit for contributions to workplace plans (both those made by the company and any additional ones the worker can make within the workplace plan). This has made workplace plans the most tax-efficient way to contribute larger amounts with tax benefits, compared with the current limits on individual plans.
The lower flexibility of choice in workplace plans
A relative downside of workplace plans is that, generally, you can't freely choose the investment policy or the management company, which are determined by the company's collective agreement with the plan's manager, unlike an individual plan, where you have full freedom to choose the manager and the risk profile you prefer.
What happens if you change employers
If you change jobs, the capital accumulated in your workplace pension plan isn't lost: you can transfer it to another pension plan (individual or workplace, if your new employer's plan allows it), keeping the tax deferral benefit with no penalty for the switch.
Combining both, when possible
If your employer offers a workplace plan with its own contribution, it's usually sensible to make the most of it before putting additional savings into an individual plan, precisely because of the advantage of the company's free contribution, complementing it afterward with other forms of saving or investing based on your capacity and goals.
Model your supplementary retirement savings
Our compound interest calculator lets you project how your combined contributions (your own and your employer's) would grow over the years until retirement.