guest post // If you are in a job earning more than £10k a year, you will likely be enrolled in your employer’s workplace pension scheme. Such schemes help millions of workers during retirement, and they are many people’s sole source of income. Consequently, opting out could spell financial disaster when you retire.
Let’s briefly look at some of the significant advantages of workplace pensions:
- Help you get financially prepared for retirement
- Your employer pays in addition to your contributions
- You receive tax relief on your payments
- Enrolment and administration are automatic
- Start Contributing as Soon as Possible
Even though the benefits listed above are significant, the best way to grow your pension is to maximise the time invested. Therefore, you should start contributing to a pension as soon as possible and continue your contributions until retirement.
The challenge is that retirement can seem a long way off, regardless of your age. Also, you must decide on the retirement lifestyle you want and work out what that will cost. Consequently, many put off their pension and retirement preparations to another day.
The good news is that everything is taken care of automatically with a workplace pension. You get enrolled automatically, and contributions are taken directly from your gross salary. All you have to do is remain opted-in to the pension scheme to prepare for retirement.
Workplace Pension Contributions
Your workplace pension contributions are taken directly from your monthly pay and amount to around 4% of your gross salary. These contributions receive tax relief, boosting them to 5%.
With your employer contributing another 3%, your pension pot receives around 8% of your gross salary. However, this figure is the minimum, and you and your employer can contribute more.
Boosting Your Workplace Pension
As we’ve just mentioned, you can contribute more to your workplace pension if you wish. These additional contributions don’t have to be monthly; you can make top-up payments whenever you have money.
Even small top-ups to your pension can have a significant effect. These will also receive tax relief, and years of compound interest growth will grow these small amounts considerably.
Should You Ever Opt Out?
We would always recommend you stay in your workplace pension scheme. The benefits of saving for your retirement, coupled with the tax relief and employer’s contributions, make a workplace pension too valuable to opt-out.
Of course, some people are in the unfortunate position of needing every pound of their salary for living expenses. In this situation, you might have to opt-out of a workplace pension, but you should only do so if you absolutely have no other option.
Don’t Forget About Your Pension
One of the benefits of a workplace pension is that everything is taken care of on your behalf. However, this also has its drawbacks.
Workplace pensions can be easily forgotten about because you have little involvement in its administration. Also, you might fall into the false sense of security of thinking you are totally sorted for your retirement.
If you change jobs, you will stop contributing to your old employer’s workplace pension scheme and start paying into a new plan. However, the money you’ve previously saved will remain invested in the old pension scheme.
Although you might think this is okay, your funds could be better off elsewhere. Not all pension plans are the same, with some liable to higher charges. Also, some pensions perform better than others.
If you leave your pension funds where they are while you change jobs, you will likely not notice any high charges or underperformance. Therefore, you should consider contacting a financial advisor when you change jobs and get advice on options for your funds. Look into Portafina.
Keep An Eye On Regulation Changes
Governments sometimes change the regulations around pensions, which can affect when and how you access your funds. For instance, in 2015, the government introduced Pension Freedoms meaning many pension holders could access their pension savings from age fifty-five.
These changes benefited thousands of people, but they do not apply to all pensions. You should check your pension to see if Pension Freedoms apply to your scheme. If you need help doing this, a regulated financial advisor is an excellent starting point.
Hopefully, this article has helped you understand the benefits of a workplace pension. More to the point, you should now know that opting out could be disastrous