Pension payments rise for millions

More than 10 million UK workers will have a bigger chunk of their wages diverted into their pension fund from their next pay packet.

Up to now savers have been contributing 2.4% of their salary, topped up by 2% from their employer and 0.6% in tax relief for a monthly contribution of 5% of gross salary.

New rules

But under the new rules the personal contribution has risen to 4% with the employer adding 3% and 1% tax relief to give an overall 8% per month investment.

Automatic enrolment into a workplace pension started in 2012 for anyone over 22 and earning more than £10,000 a year who were not already in a pension scheme, though a saver can opt out at any time if they wish.

Lose

But analysts say anyone opting out will lose the benefit of their employer’s contribution too.

Tom Selby of AJ Bell said: “Anyone who chooses to opt-out is basically taking a voluntary pay cut. If you turn down the matched contribution from an employer you won’t get it back elsewhere.”

Transformed

Yvonne Braun, of the Association of British Insurers (ABI) commented: “Automatic enrolment has transformed pension saving, bringing millions more workers into the savings habit.

“Contributions from your employer are like a deferred salary increase, helping towards a more financially secure retirement.

Pension saving can often seem daunting, especially when you cannot touch the money for some years, but the earlier you start saving, the more you will have in retirement.”

How much?

Answering the question of how much paying the minimum contribution could be worth Mr Selby said a 24 year old earning £30,000 a year could build up a pension pot which could give a retirement income of £11,000 a year.

But, because of the number of ways the savings might be invested, the amount could be significantly different.

Figures provided by DeFaqto show Standard Life averaging returns of 4.5% over the last four years, but Nest – the biggest overseer of auto-enrolment workplace pensions – showed an average return of 8.9% in the same timescale.

Losing track

Losing track of former pensions has long been a big problem for many UK workers. But that could all be about to change with online pension trackers called pension dashboards which have just been given the go-ahead by Works & Pensions Secretary Amber Rudd.
Marketing professional Iain Ross from Leeds described the problem: “I’m not sure how much I contribute to my pension each month and I have no idea where my payments from my previous job are, or how much I paid into my pension while I was there.

I am worried about money when I retire because I don’t understand how I could possibly put away enough to support myself for longer than a few years.

“I think I know so little about my pension partly because I haven’t taken the time to educate myself, but also because no one has really explained it to me in simple terms.”

Designed

The dashboards have been designed to bring together information about all pension pots in one easy to trace database to enable savers to find schemes they have lost track of.

Ms Rudd said the first voluntary versions of the dashboard could be available in months, but she is pushing ahead with new laws requiring all pension providers to make data available online within four years.

Record numbers

She said: “With record numbers saving for retirement as a result of our revolutionary reforms, it’s more important than ever that people fully understand their pensions and prepare for financial security in later life.

“Dashboards have the potential to transform the way we all think about and plan for retirement, providing clear and simple information regarding pension savings in one place online.

I’m looking forward to seeing the first industry dashboards later this year.”