The introduction of auto-enrolment pensions should mean that we’re now paying more attention to our pension than ever, but in fact, new research revealed that 28 per cent of workers are not fully aware of their employer’s pension scheme*.
Those in trade (40 per cent), sales (38 per cent) and the creative industries (35 per cent) are the least aware of their current employer’s pension plan/scheme. When it comes to age, the younger generation have the least awareness, with 41 per cent of 18-24-year-olds and 34 per cent of 25-34-year-olds admitting they are unaware of their workplace pension scheme.
Pensions are notoriously complicated but knowing the essential facts could make all the difference to your retirement. Jamie Smith-Thompson, Managing Director of Portafina, has highlighted the five things you need to know about workplace pensions to help you get your pension knowledge up to scratch:
Auto-enrolment is compulsory for employers
Providing you meet the qualifying criteria, your employer must enrol you into their workplace pension scheme. Both you and your employer make contributions based on a percentage of how much you earn, and you’ll receive tax relief from the government, meaning you could have a tidy sum in your pension pot when you need it. The current minimum contributions are five per cent for employees (including tax relief) and three per cent for employers.
Opting out could cost you thousands
While your employer must enrol you into the scheme, you can still choose to opt-out. Before you decide to opt-out you should consider how else you plan to save for your retirement, and whether you can really afford to say no to the free money that is being added into your pension by your employer. While the minimum your employer must contribute to your pension is three per cent, some are offering more, possibly matching your own contribution, meaning the difference between staying in your workplace pension and opting out could be tens of thousands of pounds.
You can top-up your workplace pension
When you add more into your pension, whether that’s by increasing your regular payments or adding lump sums as and when you can, you can significantly boost the size of your pot, possibly by thousands. However, it’s important to remember not to stretch yourself and to make sure you have enough money for the here and now.
You can move old workplace pensions into a personal pension plan
You probably will have had more than one job in your lifetime, so when it comes to retiring, you may find that you have several old pension pots that have not been paid into for many years. In some cases, these pots could be losing you money, especially if they have high charges or aren’t performing as well as they could be. When you change jobs you may have the option of leaving your pension where it is or moving it from your previous workplace into a personal pension. This is separate from your current workplace pension and you don’t need to pay anything into it. Moving your previous workplace pensions into one personal pension scheme means your money remains invested in a way that is tailored to your personal circumstances, and lower fees could mean more in your retirement fund when you need it.
Final salary schemes are like gold dust
Final salary pensions were a popular benefit offered to employees in the ‘70’s, ‘80s and ’90s. They guarantee a set level of income during retirement and can have other financial benefits attached. The amount you receive is based on what you earn and how long you have been a member of the scheme. The recent news that major high street retailer John Lewis are scrapping their final salary scheme served as a reminder that today, these ‘gold-plated’ pension schemes are incredibly rare to come by. If you get offered one, grab it with both hands!
In summary, Jamie Smith-Thompson added,
The current economic climate remains difficult, particularly for Generation Z and Millennials who are unlikely to have final salary schemes to fall back on in their retirement. And maybe they don’t feel like they can prioritise saving for their future when they have so much to pay out for now.
It is these generations that could benefit the most from the recent contribution changes in auto-enrolment. If you remain opted in to your workplace pension from the earliest qualifying age (22), you could have over 40 years of pension savings under your belt when you decide to retire. And remember, that’s 40 years of your employer adding money to your pension pot too.
Although pension saving priorities remain low for many, being opted into a workplace pension means you don’t need to think about finding the money to put away yourself each month as it comes straight out of your pay packet before it reaches your bank. That’s why if you are in your 20’s or 30’s and have no other retirement provisions, it is important that you think twice before opting out of your employers’ scheme. And remember, unlike other types of savings, your money is locked away until you are at least 55, so you can’t be tempted to dip into it.
Interested in designing the best possible rewards for your employees and business? We recommend Job Design for Increased Productivity training day.