How to boost your pension so you can retire eight years early
BOOSTING your monthly pension payments by 2.5 per cent could help you retire eight years early, according to an expert.
Currently, workers who earn more than £10,000 a year are required to pay in a minimum of 5 per cent of their salary into a pension scheme.
At the same time, employers need to deposit at least 3 per cent on top. This is called auto-enrolment.
But some employers are willing to up their contributions if you want to invest more, leaving you with either a bigger pot to live off or the choice to retire early, reports the .
Research from Royal London shows that around 3million workers are missing out on £2billion worth of employer contributions every year.
For example, financial services provider Aegon says that a 30-year-old who earns £27,000 a year and plans to retire at 68 will have a pension pot of £255,333.
That's if they rely on the minimum auto-enrolment contributions.
What is pension auto-enrolment and how does it work?
HERE's what you need to know
- What is pension auto-enrolment? Since October 2012, employers have had to enrol their staff into workplace pension schemes as part of a government initiative to get people to save more for retirement.
- When does auto-enrolment apply? You will be automatically enrolled into your work's pension scheme if you meet the following criteria:
- You aren't already in a qualifying workplace scheme.
- You are aged at least 22.
- You are below state pension age.
- You earn more than £10,000 a year in 2019/20.
- You work in the UK. - How much do I contribute? There are minimum contributions that you and your employer must pay.
Minimum contributions are being gradually increased over time.
Your minimum contribution applies to anything you earn over £6,136 up to a limit of £50,000 (in the tax year 2019/20). This includes overtime and bonus payments.
From April 2019, a minimum of 8 per cent must be paid into the pension, with you contributing 5 per cent and the employer paying at least 3 per cent. - What if I have more than one job? For people with more than one job, each job is treated separately for automatic enrolment purposes. You can still opt out of individual schemes if you want.
Each of your employers will check whether you’re eligible to join their pension scheme. If you are, then you’ll be automatically enrolled in that employer’s workplace pension scheme.
But if they upped their contribution by 2.5 per cent - the equivalent of £34.78 a month in the first year - and their employer matches it then they'll retire with £414,916 in the bank.
That's an extra £159,583 to live off, or if you'd been planning on retiring with a £250,000 private pension pot then you'll be able to retire eight years sooner than planned.
Steven Cameron, pensions director at Aegon told The Sun: "Persuading your employer to "match" your extra contributions, can make a huge difference to how quickly you build up your target pension pot, giving you much more control over when you can afford to stop work."
Steve Webb, from Royal London, says that refusing to take advantage of your employer's contributions is the same as "turning down a pay rise".
Of course, some employers set a limit on how much you can pay in.
And while you can access most workplace pensions from age 55, with the state pension age currently 68, you may have a shortfall to try and live off in between.
Mr Cameron warned: "You’ll need to make other provisions to cover the lack of state pension for that period too."
Top tips to boost your pension pot
DON'T know where to start? Here are some tips from Aviva on how to get going.
- Understand where you start: Before you consider your plans for tomorrow, you'll need to understand where you stand today. Look into your current pension savings and policy and research when you’ll be eligible for the state pension, and how much support you’ll receive.
- Take advantage of your workplace pension: All employers are legally required to provide a workplace pension. If you save, your employer will usually have to contribute too.
- Track down your pensions: If you've moved jobs a lot, this means you'll have several pension pots. It can be hard to keep track of them all, but the government offers to help you.
- Take advantage of online planning tools: and have tools that give you an idea of what your retirement income will be, based on how much you're saving.
- Find out if your workplace offers advice: Many employers offer sessions with financial advisers to help you plan for your future retirement.
Auto-enrolment was introduced by the government in 2012 to encourage workers to save for retirement.
The minimum amount you pay in is being gradually increased over time but you can boost it yourself by being proactive in finding out exactly how far your employers are willing to go in terms of upping their contributions.
Unfortunately, not everyone will be able to benefit from doing this though as it all depends on how much you employer is willing to contribute to your pension.
"The amount an employer will contribute varies greatly," explained Mr Webb.
"Small firms that never had a pension arrangement before automatic enrolment may stick to the legal minimum, while many firms will match what you put in up to a limit."
Adrian Boulding from Now: Pensions added: "It's well worth asking, as many workers are automatically set up with low contribution levels and could be receiving more employer money if they paid more in through payroll."
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