Are you putting enough into your workplace pension?
Recent figures suggest that people are putting the bare minimum into their workplace pension pots.
17TH AUGUST 2018
If you’re a contracted employee over 22 years of age earning more than £10,000, you are most likely part of a workplace pension scheme. But exactly how much do you contribute to that scheme? Should you consider putting more funds into the pot?
Since late 2012, the government gradually introduced automatic enrolment, forcing employers to enrol eligible workers into a workplace pension. Employees are expected to make a minimum contribution of 3% of their salary – deducted from pay at the end of the month – and in turn, the employer must contribute at least 2%.
From April 2019, the minimum limits will go up. Employees will have to contribute 5%, while employers put in 3%. At present, the overall contribution before tax relief is 5% – from next year, that percentage increases to 8%. So far, so good. Or is it?
The findings of a two-year study on behalf of Labour came to the conclusion that workers ought to have put away 15% of their lifetime earnings before retirement in order to avoid “future pension poverty”. Even when the increased contributions from April 2019 onwards are taken into account, this leaves a drastic shortfall of 7% between a passive workplace pension and the desired target.
Worryingly, recent figures from the Office for National Statistics suggest that workplace pension saving has taken a sharp turn for the worse since auto-enrolment began.
In 2012, employees were putting an average of 9.4% of their salary into a workplace pension. By 2016, that number had been more than halved. Last year, it dropped further, with employee contributions coming in at just 3.4%.
Auto-enrolment has undoubtedly played a part in the downturn, with millions more workers now belonging to a pension scheme. However, the statistics suggest that the majority of the country’s workforce are contributing no more than the minimum amount.
What’s more, there are some concerns that these schemes could be deserted once employees have to put 5% away each month. That’s over double what is currently contributed, and will certainly be a more noticeable number on the payslip, though Legal and General have remarked that opt-out rates remained low during last year’s contribution increase.
How do you intend to hit – or surpass – that 15% salary savings target? For tailored advice on how to get the very most out of your pension contributions, talk to us today.
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