Introduction to Workplace Pensions

Have you ever stopped to think how you’d keep up the cost of your current lifestyle without a salary? That’s the reality you’ll face in retirement. Thankfully, with a Workplace Pension, investing towards retirement is both easy and effective.

When starting a new job, your employer is legally obliged to enrol you into a Workplace Pension, as long as you are aged between 22 and state pension age, earn over £10,000 a year, and work in the UK. If you fall outside of these criteria you may be able to opt in to a Workplace Pension – speak to your employer to find out.

The current minimum you pay is 3%, the current minimum your employer pays is 2%, for a 5% total minimum contribution. The government adds tax relief, which essentially means free money, it means your contribution actually works out as 2% from your employer, 2.4% from yourself, and tax relief at 20% which works out at 0.6%, to give you the combined 5%.

From April 2019 the minimum you contribute is 5%, and the minimum your employer pays is 3%. This means a total minimum contribution of 8%. Again, the same tax relief is applicable, making it even better value to contribute towards your Workplace Pension. Why not get ahead of the upcoming change and up your contribution now?

While it can be easy to overlook the small part of your payslip which goes to your workplace pension, it is absolutely something worth paying attention to. Eventually, all the contributions will add up towards a nest egg that pays for your retirement. You’ll want to make sure you have enough to cover the potential decades you’ll be in retirement, so putting away as much as you can over as long of a period as you can is vital.

You may want to consider increasing your contribution, as a little money now has the potential to come back to you as a lot of money later. This is because your Workplace Pension will be invested in funds, which when you factor in growth and compounding could become worth more over time.

One thing that a Workplace Pension is different from is a Defined Benefit Pension.  Sometimes known as final salary scheme, this is a Pension where your employer pays you a secure income for life. Typically offered in the public sector, or larger businesses, these types of Pension are becoming less common, hence the importance of thinking about your Workplace Pension contributions.

Make a difference to your future today, look at your workplace pension, and consider if your contribution will provide you with a good income when you retire . Set a goal for the amount of money you’ll need in retirement, then track your progress towards it. Staying disciplined with long term investing towards your goal could provide you with the money you need to maintain your lifestyle and enjoy your retirement to its fullest.