The ABC of Workplace PensionsPosted by James Hester
Changes to the law with the introduction of what’s known as “Automatic Enrolment” mean that you could get extra money from your boss paid into your pension pot each month.
The good news is that employers are required to make contributions to pension schemes as part of changes in the law with the introduction of what’s known as “Automatic Enrolment.” It’s hassle free for you as your boss takes care of all the admin.
Automatic Enrolment means that every employer must automatically enrol workers into a Workplace Pension scheme if they are aged between 22 and state pension age, earn more than £10,000 a year and work in the UK.
Employers will need to make regular payments into the pension schemes of all those who are automatically enrolled as well as some of those workers who choose to opt into the scheme.
Saving for a brighter future
The money saved in your pension pot can eventually be used to pay you an income for the rest of your life once you retire. Depending on the scheme, the earliest you can retire is normally 55 unless you are seriously ill.
The money in the pension scheme is invested on your behalf, typically in a mixture of equities and bonds with the proportions depending on factors such as your attitude to risk and the time left to retirement.
While investment returns will play a part in the amount you eventually build up, the combination of your own contributions each month and what your employer puts in could amount to a decent pension pot over time. And unlike the rest of your pay packet, you get tax relief on the money that you choose to contribute to your pension .
As well as purchasing what’s known as an annuity on retirement - an investment vehicle that will pay a guaranteed income for life - retirees can elect to take at least 25% of their pension as a tax free lump sum.
The money you build up in your Workplace Pension scheme could make things much easier for you financially when you retire, providing a vital supplement to the basic state pension, which is currently a maximum of just £113.10 per week for a single person.
You will need to think about how much more you need to or can afford to save for your retirement but the Changes to pension rules should help you build up a decent pension pot over time.
For more information visit DWP Workplace Pensions
Read more at 'We're All In' Workplace Pensions hub on 50connect.
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