How builders and electricians starting on £18k a year could get a £100k retirement pot
THE number of construction workers saving for retirement is on the rise and the good news is they could end up with a pension pot of £100,000 or more.
A record 671,000 construction workers are now saving into a pension up from 232,000 five years ago, according to new data from the Department for Work and Pensions (DWP).
This is largely due to the government's auto-enrolment rules introduced in 2012.
Under these, anyone in employment - whether you're a construction worker or electrician - earning at least £10,000 a year and aged between 22 and the state pension age has to be automatically enrolled into a workplace pension.
And while it was only big companies that had to meet these requirements to begin with, now all employers have to follow them - regardless of how small the company is.
Since April 6, you need to pay at least 3 per cent of your salary into this workplace pension, while your employer needs to deposit at least 5 per cent on top - although you can often both choose to pay in more.
What are the different types of pension?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (Sipp) - this is a pension you can set up on your own where you can pick the provider and choose how much to invest.
- Workplace pension - if you're an employee it's likely you'll have been auto-enrolled into a workplace pension. The pension provider is usually chosen by your employer and you won't be able to change it - but you can always try speaking to your HR department if you think employees would benefit from a different scheme. With workplace pensions, both the employee and employer have to pay in a combined minimum of 8 per cent.
- New state pension - this is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £168.60 a week and you'll need 35 years of national insurance contributions to get this. You also need at least ten years' worth of national insurance contributions to qualify fullstop.
- Basic state pension - this is what the state pays to those who reached state pension age on or before April 6 2016. The full basic state pension is £129.20 per week and you'll need 30 years of national insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension.
Prior to April 6, employers had to pay in at least 2 per cent, while employee payments were the same at 2 per cent.
And while retirement may sound a long way off, it's important to start saving as soon as possible.
Experts at the Pensions Policy Institute worked out that a 22-year-old on the average salary for their age of just £18,000, could have a pension pot of a whopping £111,000 when they come to retirement age.
That's assuming they started saving in 2018 and both they and their employer continue making the minimum contributions, plus it assumes your wage rises in line with expectation for average earners.
And while you're not automatically enrolled into a workplace pension at 18, if you did start saving sooner, the average earner could expect an even larger pension pot of £115,200 come retirement if they began saving int 2018.
But it's not too late for older workers to start saving either.
The Pensions Policy Institute found that a typical low earner who started saving in 2017 at age 27 on the average salary of £18,000 would still have £51,700 come retirement.
While higher earners on £36,000 at age 27 could expect a pot more than three times as large at £158,100 if they started saving in 2017.
Even a 35-year-old who started saving in 2017 while earning an average £32,000 wage would net £79,700 come retirement.
In total, more than 10million people have been brought into workplace pension saving through automatic enrolment, according to DWP.
Of course, if you're self-employed you sadly can't benefit from auto-enrolment, although the government is currently working on an alternative to help these pension savers.
It's thought they could be missing out on a £450,000 retirement windfall.
Minister for pensions and financial inclusion, Guy Opperman, said: “Britain’s brickies know just how important it is to build firm foundations to ensure stability for the future. So it’s no surprise to me that they’re embracing our revolutionary pension reforms.
“Automatic enrolment is improving the nation’s pension prospects, bringing record numbers into saving across every sector and every region.”
More on pensions
One retired couple may have to sell home of 40 years due to a little-known pension rule.
And if you've got a pension, make sure fees don't reduce your savings pot by hundreds of thousands of pounds.
Plus, we explain how to check if you’re due a state pension windfall as one retiree uncovers a missing £133,000.
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