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Why boosting your pension isn’t all bad news for your pay packet

By Marc

There are warnings that you could see your salary cut from next month, but the change could actually be beneficial to your financial future.

From April 2019, the government is increasing the minimum contribution that employees must make into workplace pensions.

This is part of auto-enrolment rules, where all staff are automatically signed up to a company pension scheme and have to opt out to leave.

When the system was first setup in 2012 the minimum contributions were 1%, rising to 3% last April and 5% from next month.

There is an argument that if you are putting more into your pension you will then have less to take home.
But that money is being put to good use and if invested and managed well will hopefully help you build a decent pot that you can access at retirement.

Saving into a pension also has other benefits as you get tax relief on your contributions, which boosts the amount that goes into your pot.

The more you put in, the bigger your retirement pot could be.

At the same time, employers must also contribute and must invest 8% worth of your salary into the scheme.

Additionally, making pension contributions from your salary will also reduce your tax bill as your are taking less income.

Kate Smith, head of pensions at provider Aegon, takes a positive view on it.

She explains: “Pensions are part of people’s pay packet. For someone earning £15k, the reduction in take home pay results in an extra £261 contributed to their pension each year a significant amount of which comes from the employer.

“We hope that people will take a long-term view on their pension contributions as opting out is likely to make saving for retirement later much harder by reducing the length of time pension contributions can benefit from investment returns. Putting off pension saving could turn out to be harmful in the long term.”

  • The value of an investment and any income from it can fall as well as rise and you may not get back the original amount invested.
  • Past performance is not a reliable indicator of future performance and should not be relied upon.