Are you missing out on the “two for one” pension offer?

The “buy one, get one free” offer might be more associated with supermarkets, employers enrolled in workplace pensions schemes are not taking full advantage of the pension equivalent, according to insurance giant Royal London.

Many workers enrolled in a workplace pensions scheme only pay the minimum contribution of 1% of their salary. This is matched by the employer, who also contributes 1%, making a 2% contribution in total. As of the start of the 2018-19 tax year, this will increase to a minimum contribution of 5% (with 3% contributed by the employee), and then to 8% (5% contributed by the employee) as the 2019-20 tax year begins.

However, larger firms often allow pension scheme members to contribute more than the minimum amount, meaning if an employee opts to top up their pension contribution by another 3.5% of their salary, they will be contributing a total of 7.5%. The “buy one get one free” process means that if the employer also match the extra contribution, the employee receives twice as much pension contribution, so in the case of an employee’s 7.5% matched with an equal employer’s amount, the total pension contributions will be 15% of the salary.

A contribution of 15% is regarded by many as the minimum amount that should be saved to provide adequate retirement income. Contributing less could mean a severe cut in lifestyle on retirement.

Some employers are even more generous, putting in £2 for every £1 by the employee. The employee’s contributions are tax free. For someone on a 20% tax rate, the actual cost to the employee of contributing £1 is 80p.

There are many other saving and investment strategies that can boost your retirement income. Endeavour Financial Planning provides retirement advice for Wirral, Chester and Liverpool residents so that they can look forward to financially comfortable senior years.

A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation

Source used: https://www.theguardian.com/money/2017/jun/17/british-workers-pensions-bonus-schemes-retirement-income

Posted by EndevAdministrator
26th July 2017

Disclaimer

All blogs and news on Endeavour Financial Planning are for information purposes only and are not intended to provide advice. Please seek the advice of a financial advisor before making any financial decisions.

Pensions

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