Why you shouldn’t be put off by an increase in auto enrolment pension contributions
You may see a slightly bigger dent in your payslip this month due to changes to auto-enrolment pension rules.
From 6 April 2018, minimum pension contributions, paid by employers and employees, through auto-enrolment have risen from 2% to 5%. That is 2% from your employer and 3% from your gross salary.
The minimum will be increased again from 6 April 2019 to 8%, made up of 3% from your employer and 5% from you.
No-one likes to see too much money come out of their salary, but it is important to look at pension contributions separately to the national insurance you see being taken from your payslip.
Employees in most firms are now automatically opted into pension schemes in the first three months of employment. You can opt out if you wish within one month of being enrolled but you are effectively giving up free money from your employer through their contributions, plus you get tax relief on the amount you put in. Basic rate taxpayers get a 20% boost on their contributions from the government, while higher rate taxpayers get the same and can claim an extra 20% on their tax return.
This is a golden opportunity to put money away for your retirement with little effort. But it is worth paying some attention to your pension. The amount you contribute is important and going beyond the minimum can boost your pension savings, but it is also vital to know where your money actually goes.
Everyone has different retirement strategies, depending on your attitude to risk, so it is important your pension savings are working to goals you set rather than what your pension provider believes is appropriate.
Most pension schemes will automatically put your money in a default fund. These may be suitable for some people as it saves you the trouble of choosing your investment.
They are generally ‘one-size fits all funds that don’t usually take too much risk and also aren’t tailored to any individual needs. This may affect the performance of your retirement savings so if you want more control you may consider looking at other funds your pension money can go into.
Many pension schemes will let you choose your own funds and will have more adventurous options. but if you need help setting your goals or selecting a suitable strategy, get in touch with your financial adviser.