Don’t Opt-Out: From 06 April, £27 a Week will Bring £125,000 in Retirement

Financial advisers and pension specialists, Profile Pensions, identify growing concerns in the upcoming workplace pension scheme rise, advocating for easy-to-understand explanations, well-informed decisions and useful pension advice for all.

From 6 April 2019, the workplace pension scheme is set to rise again to a total of 8%. Although minimum employer contributions are increasing from 2% to 3%, the employee contribution potentially needing to grow from 3% to 5% has experts worried that Brits will see the short term income loss as reason to opt out of the auto-enrolment altogether.

Experts urge all to remain enrolled in the scheme to reap the long term benefits, aiming to provide clear explanations of what these changes mean, dispel opt-out myths and crunch the numbers to assist all in achieving a comprehensive pension understanding.

Pension Benefits Explained: Varying amounts of UK pension comprehension have been reported in the media, as much as 85% in a 2015 report said to not understand what it all means. To clarify for those uncertain:

  • Your employer is giving you money you wouldn’t otherwise receive – The minimum of 3% (or more if your employer chooses to) means 3% minimum of free money you would otherwise never have received.
  • The Government is giving you money you wouldn’t otherwise receive – ‘Free money’, in the form of a tax relief, is given to those contributing to their pension. For basic rate payers, a £100 contribution to your pension will only cost you £80 thanks to the 20% tax relief. Higher tax brackets will receive an even larger percent of relief.
  • A Better Financial Future in Retirement – The state pension alone may not be sufficient to support you in retirement, depending on your choice of lifestyle. Your workplace pension scheme is a fantastic way to build your pension pot with the free money from employer contributions, tax relief, and time for the fund to grow, all helping to reduce the stress of your financial future.

The result? An annual pension contribution of 8% of your salary, from the age of 30, on a median annual income of £28,677, could mean £125,000 in your pension pot at retirement.*

Broken down further, paying in £27 a week (5% of your income, with the other 3% comings from your employer contribution) could bring your pot to £125,000.

Important Information for Alternative Employment SituationsCertain employment situations have people wondering if this advice still applies to them; if you fall into one of these categories, we’ve outlined the basics below:

  • Self-employed – Without the comfort of an employer contribution, the self-employed and business owners have the luxury of flexible contributions, available from £20 a month and the ability to stop and start as they please. With further tax relief and additional encouragement from the government anticipated in the future, the self-employed should not be discouraged by pensions.
  • Moving employers – Most modern pension schemes are portable, meaning it can move with you through employers, roles and industries. Don’t let moving employers encourage a decision to opt out, as you will not lose your pot.
  • Expats – Foreign nationals working in the UK should know that the pension they accumulate while in the country will be accessible in the future. Exact details are country-dependent but your earned pension will remain yours, internationally.

Michelle Gribbin, Chief Investment Officer at Profile Pensions says;

“The workplace pension scheme is to the benefit of UK employees and designed to help everyone prepare for their financial future. Together, the employer contribution, tax relief, and investment growth offer the ability to significantly increase the value of your money for a time in your life when you will really need it.”

She continues;

“Straightforward pension advice is a vital step in the personal finance education process. When people really understand what these contributions mean, where they come from, and how opting-out impacts their financial future, they become empowered to make their own informed decisions and potentially be over £125,000 better off in retirement.”

Author: Editorial Team

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