More than a quarter of workers are not aware of their workplace pension schemes, with some age groups and professions particularly in the dark.
The introduction of auto-enrolment pensions should mean that we’re now paying more attention to pensions than ever, but research by pensions advice specialist, Portafina, revealed that 28% of workers are not fully aware of their employer’s pension scheme.
Those in trade (40%), sales (38%) and the creative industries (35%) are the least aware of their current employer’s pension plan/scheme. The younger generation have the least awareness, with 41% of 18- to 24-year-olds and 34% of 25- to 34-year-olds admitting that they are unaware of their workplace pension scheme.
Pensions are notoriously complicated but knowing the essential facts could make all the difference to your retirement.
Auto-enrolment is compulsory for employers
Providing you meet the qualifying criteria, your employer must enrol you into their workplace pension scheme. Both you and your employer make contributions based on a percentage of how much you earn, and you’ll receive tax relief from the government, meaning that you could have a tidy sum in your pension pot when you need it. The current minimum contributions are 5% for employees (including tax relief) and 3% for employers.
Opting out could cost you thousands
While your employer must enrol you into the scheme, you can still choose to opt out. Before you decide to opt out, you should consider how else you plan to save for your retirement, and whether you can really afford to say no to the free money that is being added to your pension by your employer.
While the minimum your employer must contribute to your pension is 3%, some contribute more, possibly matching your own contribution, meaning the difference between staying in your workplace pension and opting out could be tens of thousands of pounds.
Top-ups are allowed
When you add more into your pension, whether that’s by increasing your regular payments or adding lump sums when you can, you can significantly boost the size of your pot, possibly by thousands of pounds. However, it’s important to remember not to stretch yourself and to make sure that you have enough money for the here and now.
You can move old workplace pensions into a personal pension plan
Most people will have more than one job in their lifetime, so when it comes to retiring, you may find that you have several old pension pots. In some cases, these pots could be losing you money, especially if they have high charges or aren’t performing as well as they could be.
When you change jobs you may have the option of leaving your pension where it is or moving it from your previous workplace into a personal pension. This is separate from your current workplace pension and you don’t need to pay anything into it.
Moving your previous workplace pensions into one personal pension scheme means that your money remains invested in a way that is tailored to your personal circumstances, and lower fees could mean more in your retirement fund when you need it.
Final salary schemes are rare
Final salary pensions were a benefit offered to employees in the 1970s, 1980s and 1990s. They guarantee a set level of income during retirement and may have other financial benefits attached.
The amount that you receive is based on what you earn and how long you have been a member of the scheme. The recent news that high street retailer John Lewis are scrapping their final salary scheme serves as a reminder that today, such “gold-plated” pension schemes are incredibly rare to come by. If you get offered one, grab it with both hands.
Jamie Smith-Thompson, managing director of Portafina, says: “The current economic climate remains difficult, particularly for Generation Z and millennials, who are unlikely to have final salary schemes to fall back on in retirement. [Perhaps] they don’t feel like they can prioritise saving for their future when they have so much to pay out for now.
“It is these generations that could benefit the most from the recent contribution changes in auto-enrolment. If you remain opted in to your workplace pension from the earliest qualifying age (22), you could have more than 40 years of pension savings when you decide to retire. And remember, that’s 40 years of your employer adding money to your pension pot, too.
“Although pension saving priorities remain low for many people, being opted into a workplace pension means that you don’t need to think about finding the money to put away yourself each month, as it comes straight out of your pay packet before it reaches your bank. That’s why if you are in your 20s or 30s and have no other retirement provisions, it is important that you think twice before opting out of your employer’s scheme. And remember, unlike other types of savings, your money is locked away until you are at least 55, so you can’t be tempted to dip into it.”
Jamie Smith-Thompson is managing director of Portafina.