Workers could be missing out on hundreds of pounds a year by only saving the minimum into their pension pot. Unbeknown to many employees, some firms will match the employee contribution (up to a maximum amount), so if people saved more, their employer would also pay in more. It estimated that more than 3million workers could accumulate an additional £650 a year from their employer towards their retirement.
Stuart Price, Partner and Actuary at Quantum Advisory, thinks employees need to be more educated when it comes to their pensions, particularly on how little it can actually cost them to save. Stuart said: “Although not everyone is fortunate to be in a generous defined contribution scheme, this announcement does highlight the lack of education and communication surrounding pensions. The big problem, in my opinion, is that many individuals do not realise that saving for a pension is much less costly than they think when you take into account the tax relief that is granted on pension contributions. In addition, if pension contributions are paid via salary sacrifice, which is becoming more and more common following the government’s confirmation last year that they had no intention of abolishing this, further savings are made. For a typical 4% contribution, the real rate for a lower rate tax payer is 2.7% and just 2.3% for a higher rate tax payer.
“Since the government introduced auto enrolment in 2012, nearly 8million individuals have been enrolled into a pension scheme. While this is obviously great news and shows the system is working, there is still a lack of understanding about how people can get the most out of their scheme to ensure they can retire at a reasonable age and have a decent level of income.”
Stuart Price, Partner and Actuary at Quantum Advisory