What is a workplace pension?
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
Working towards your retirement is a distant thought for many of us, yet it is what we do now that could make such a big difference later in life. That’s why it is so important to pay attention to your Workplace Pension. This is arranged for you by your employer, and you both contribute an amount each month, with the ultimate goal of building a Pension pot big enough to fund your retirement.
An employer is legally required to offer all employees a Workplace Pension, and automatically put you in if you meet the following criteria – If you’re aged between 22 and state pension age, earn over £10,000 a year, and work in the UK.
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?
Consider how that investment will grow over the course of your career. Typically, your Workplace Pension will be invested in funds, and the yearly growth from these is then compounded into further growth. Picture a snowball, rolling into something greater over time. That’s what your Workplace Pension is, ultimately building into something substantial enough to fund your lifestyle in retirement.
Don’t fool yourself into thinking you’ve got time on your side. The fact is, the earlier you start investing for retirement, the better. Little and often investing in a Workplace Pension over the long term is going to give you a much better chance of growing your money than cramming money away later in life. At the same time, it’s never too late to make a difference. Every penny ultimately counts towards a bigger picture, your money has the opportunity to grow in value when invested in a Pension.
The great thing about a Workplace Pension is that it involves almost no stress on your part, as Workplace Pensions are arranged by your employer. Some are called ‘works’, ‘company’ or ‘work-based’ pensions’, but they all do the same thing, putting a percentage of your pay into the pension scheme automatically every payday. However, 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.
With a Workplace Pension, you’ll be invested in funds that aim to grow over time, and that’s why putting as much as you can into your Workplace Pension sooner rather than later makes sense. You can still make a difference if you are getting nearer retirement by putting in more money.
Most pension schemes set an age when you can take your pension, usually between 60 and 65. In some circumstances you can take your pension early. The earliest you can take your pension is currently 55.
Make a difference to your future today. Take a look at your Workplace Pension and ask yourself if your contribution is enough to provide a comfortable income in the future. Think of this as giving yourself a pay rise in retirement. Set your goal, track your progress, and stay disciplined towards making yourself a brighter future.