How workplace pensions can benefit you
A workplace pension is a pension arranged by your employer, who usually contributes to the fund as well. Coupled with tax relief, this can really boost how quickly your fund grows. Not all companies currently offer workplace pensions, but auto-enrolment is making it compulsory for businesses to start one for employees that meet the following conditions:
- Are over the age of 22 but younger than state retirement age
- Earn at least £10,000 a year
- Work in the UK
Auto-enrolment does not include funding a self-employed pension, so those who work for themselves will need to start their own pension plan.
You might already be in a workplace pension
Many companies provided workplace pensions before auto-enrolment, so you may already be enrolled. If you’re not sure, you can ask your employer if there is a workplace scheme and if you are part of it. If not then you will be entered into one as part of auto-enrolment if you meet the criteria – if you don’t, you can request to be enrolled anyway.
How they work
The key difference between workplace pensions and other pensions is that they usually receive employer contributions. This is in addition to the tax relief applied to pensions, so drastically increases your fund size. Currently, the minimum contribution under auto-enrolment is 0.8% of your salary, but the total amount ends up higher than that:
As stated, many employers will match your contributions to a certain limit. This is free money, and can mean if you contribute 5% of your salary your fund will receive 10%. To put real numbers to this, saving £800 could add £2,000 to your fund after tax relief and your employer’s contribution.
Contributions are also made if you are on paid or maternity leave. During paid leave, your contributions are based on the money you receive in that time, while your employer’s are based on the salary you receive when not on leave. With maternity leave, your employer contributes for at least the first 26 weeks even if you are not getting paid.
Being in a workplace pension does not tie you to that job forever – the pension belongs to you, and remains invested and available to you even if you stop paying into it. Some workplace pensions allow you to continue contributing even if you stop working, but the scheme provider will confirm if yours allows it or not. You can also have multiple workplace pensions, or you may be able to consolidate them into a single fund.
Whether you leave each one invested separately or combine them into one is up to you, but it’s important to know how they are performing. Workplace pensions do not currently move with you from one job to another, so it’s very easy to forget about them; however, forgetting about them means you aren’t keeping an eye on performance so you could reach retirement with less than you were hoping for.
Are you enrolled in a workplace pension, or want to know more about them? Let us know with a comment below.
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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new
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