Saving into a pension is an important financial step we should all be taking to ensure a comfortable lifestyle when we stop work.
When it comes to workplace pensions, all employers will have been required to enrol their eligible workers into a scheme by 2018, if they:
- are not already in one
- are aged between 22 and the State Pension age
- earn more than £10,000 a year
- work in the UK
You can choose to opt out of the scheme, but your employer is obliged to enrol you back in automatically every three years. You can opt out again if you still don’t think it’s for you, but you should think carefully before you do – especially if you don’t have any other pension savings. After all, what will you live on when you retire?
Don’t rely on the State
Many people over estimate how much they will receive from the basic State pension, which is currently just £115.95 a week plus any means-tested benefits. This will rise to a maximum flat rate of £155.65 from April 2016 – but only for those that have paid 35 years of National Insurance – providing an income of just over £8,000 per year.
Saying no to free money
Take 30 year old Miss Brown earning £26,500 per year with no current pension savings, who wants to retire at 60. If she pays in £300 a month in to a private pension scheme until retirement she will receive an estimated pension income of just £3,960 per year.
If Miss Brown is opted into an auto-enrolment scheme where her employer contributes 5% per month (the minimum employer contribution is currently 1% which will increase over time), her estimated income at retirement rises to £5,420 per year. That’s nearly £1,500 a year more with no additional cost to her.
What will you live on when you retire?
Relying on the State pension alone could mean a drop in your income when you retire. Saving into a pension, including a workplace pension scheme, means you will have more money to continue doing the things you enjoy when you retire.