Auto-enrolment has been in place for some years now. With so many people not saving enough in their private pension funds, the auto-enrolment initiative was introduced to encourage people to save for their retirement and not rely on a state pension. From April this year, there will be an extra increase in automatic pension contributions: a minimum of 5% will be taken from people’s salary if you are over 22 years old and earn over £10,000 per annum.
Auto-enrolment or workplace pensions are a great way to encourage younger people to save sooner. Over 20% of under-35s have saved nothing into a pension (1). Although paying off the student debt or saving for the first home is understandable, for pension contributions it’s a case of the earlier, the better. Like any investment, the longer you have a personal pension invested, the more money you can potentially earn. According to the BBC, paying into an auto-enrolment pension from age 25 can potentially look forward to a post-retirement income of up to £18,000, plus a full state pension.(2) This adds up to over £26,000 – the figure that Which? currently recommends for a comfortable retirement. (3)
Some argue that the increase in personal contributions will be difficult for those on low income – although it is timed for April, when people may receive a pay rise. A hidden problem, though, is becoming complacent. Auto-enrolment does not mean you can put retirement planning to the back of your mind, and it does not, in itself, guarantee you a comfortable retirement. This is especially the case for those aged over 40, who may not have been saving for long enough for this to build up to a decent figure. Although the extra contributions will give you some extra money, this may not be enough.
It’s always a good idea to carry out a pension check to help with your retirement planning and ensure your personal pension will give you what you need. There are budget planners available to help you work out how much you need to retire. You can also check your old workplace pension, as moving it into the new workplace pension scheme could help it to grow more quickly. If you are on a defined contribution pension, increasing your contributions even by a small amount could add up to big gains in the long term. Merging pension pots – also known as pension consolidation – can also be beneficial, to avoid hidden fees or ensure you get the best rate. You can also look into other forms of investments such as an ISA.
An independent financial adviser, regulated by the FCA (Financial Conduct Authority) like us at Pension Works are the best people to help check your pension. As well as advising you on your current pension fund, they will also be able to help in your retirement planning. They’re not just pension advisers, as they consider your other savings and investments, personal circumstances. They can advise you on how much you will realistically need to retire and suggest any changes that might be needed to help you achieve these goals.
To get free, impartial advice on how much you need to retire, contact us today on 0808 164 2664. Or, to find out more about Pension Works, click here.
This can be found on your payslip, P60 document or letters about tax, pensions or social benefits.
If you have (or have had) a pension that is described below then we can potentially carry-out a Pension HealthCheck.
Defined Contribution Pensions
These are ‘Pot of Money’ pensions where the benefits provided take into account the value of the fund at retirement. They can be personal pensions or Occupational Pensions. There are no guarantees as to what pension will be provided. This will be a reflection of contributions made and investment growth.
Defined Benefit Pensions
These offer the promise of a guaranteed pension at retirement which reflects the length of service with an employer. It will be based on either the Final Salary or Average Career Salary of the employee. Providing the company is still in existence, there is no investment risk for the pension receiver. This type of pension is becoming less frequent.
This is a generic term for pensions that are not workplace schemes.
Group Personal Pensions
Employer-sponsored schemes – each member has a personal pension plan, and their contract is with the pension provider. The employer’s role solely is to select the scheme provider, decide if there should be any restrictions on fund choices and take contributions from the employee’s pay and forward them with employer contributions to the pension provider.
A private pension arrangement or personal pension is taken out by a sole-trader or self-employed worker.
State Earnings Related Pension (formerly Graduated Pension and subsequently State 2nd Pension or S2P) was an additional element of State Pension for employees. The amount of pension was linked to the employee’s salary. SERPS was abolished in 2016 when the flat rate State Pension was introduced.
Private pensions are contracts between the pension member and an insurance company or another pension provider.
These are personal pensions where the member has a much wider choice of investments, including commercial property and single company shares.
Personal Pensions with a set of rules that impose amongst other things a maximum annual management charge (AMC), low minimum contribution levels (£20 per month) and an appropriate Default fund.
Private pension linked to an employer’s Defined Benefit Scheme but separate from the Scheme’s internal Additional Voluntary Contribution (AVC) arrangement – largely defunct since the rules were eased several years ago, allowing people to contribute to both personal and employment schemes as they wish.
Money Purchase Pensions
This is another name for Defined Contribution Pensions.
Unfortunately, we are unable to help clients who currently work for or have a pension from one of the following:
If you are unsure about the type of pension(s) you hold, please contact us on 0800 756 1288 or email firstname.lastname@example.org