Auto-enrolment into work-related pensions takes some of the pressure out of remembering to save for retirement, however, Britons could be missing a trick or two if they don’t look further.
As the cost of living crisis continues, those planning for the future may wish to explore what their pensions can do for them before opting to stop paying into it.
Pensions are an important benefit for employees, and employer contributions can make a big difference to how much someone ends up with.
Many experts argue that living on the state pension is not sustainable as prices continue to rise.
Employees can get extra income from the contributions they and their employer pay into your company’s pension scheme by prioritizing and taking full advantage of the workplace pension.
Steven Cameron, director of public affairs at Aegon, emphasizes the minimal effort people need to make to enjoy the benefits of workplace pensions: “Your employer is responsible for setting up a workplace pension scheme for everyone employee and you are automatically registered.
“This avoids you having to do anything – basically you become a member of a pension scheme automatically. You can “opt out” but this is actually giving you free money.”
How to get the most out of the workplace pension:
Employer and Government Cash: The money put into the pot is contributed by their employer and the Government. Under car registration, employers are required to put in a minimum of three percent, Government tax relief provides another percent and employees must put in at least four percent. If they refuse, the above is lost.
Emma Byron, managing director of Legal & General Retirement Solutions, said: “Your contribution is doubled at no extra cost to you. It’s a cheap and easy way to boost your pension savings.”
Matching contributions: Some employers adhere to minimum auto-enrolment contributions (three for any qualifying earnings), but others are willing to do more and if people can put five or six per cent into their pension, they will. This is called an employer match.
When people find out how much they are paying in, they can see if they can afford to pay in more. Adding just one extra percent could make a big difference over time. Especially if their employer suits it.
Personal contributions: Even after a person has maxed out their employer’s matching contributions, they will continue to benefit from free additions from the Government.
Britons can pay the equivalent of their annual salary, up to a maximum of £60,000.
salary sacrifice: This scheme is essentially a legal way of avoiding National Insurance payments. Employers allow staff to take a supposed ‘pay cut’, but the money is put into their pension or towards some other benefit such as childcare or an electric vehicle instead, and both sides pay less NI as a result.
Child benefit: The amount of child benefit a person can receive is reduced when a parent is earning over £50,000 a year, but they could be pushed back below the threshold to claim child benefit by adding to the person’s pension .
Mr Cameron said: “If you pay a personal contribution into your workplace pension, your net income is reduced and you could get some or all of your child benefit entitlement back.”
Financial advice: Britons have the option of taking tax-free payments out of their pensions to cover the cost of the council.
Becky O’Connor, head of pensions and savings at Interactive Investor, said: “The option exists through something called the pension advice allowance.
“The amount is tax-free up to £500 per session, it’s available at any age and you can use it three times during your lifetime but once per tax year. No tax will be charged on the £500 withdrawal from the pension pot, regardless of your income.”
Other benefits of a workplace pension:
- Capping charges: If people keep their pension in their employer’s ‘default’ or standard investment fund, the charge is capped at 0.75 per cent.
- Unearned or self-employed now: Non-earners can put up to £2,880 a year into their retirement pot, to get a maximum of £720 or 20 per cent in tax relief from the Government.
- Free help, seminars and mid-life MOTs: It’s worth browsing the employer’s pensions site for offers of help like this
- Default funds and alternatives: Default funds are usually trackers that passively match the performance of one or a selection of the world’s stock markets, and are free to own. It is the safest option for the employer.
- Tools and calculators: Mr Cameron said “Many modern workplace pensions give you the ability to access your pension online, check things like how much you’re contributing, how much your fund is worth currently, where are you invested and how much. which you may have by the time you reach your chosen retirement age.”
- Merging old pensions
- Bankruptcy protection
- Death benefits
For more information on workplace pensions, Britons are advised to seek help from a financial adviser or check the Government website.
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