pensions

What pensions information should I be aware of?

Whatever your employment status, it is worth starting to plan for funding retirement as soon as you are able to. It is estimated that once you retire you will need 50% to 70% of your pre-retirement income, and with that in mind it is unlikely that the state pension will be sufficient.

Pensions are long term investment plans which are specifically designed to provide for your retirement. The compound growth (where the interest earned is reinvested into the scheme) can be significant, meaning the earlier you start contributing to a pension it is more likely to result in a larger pension at retirement.

Also, there are tax benefits where the government gives tax relief equal to the highest rate of tax that you pay. This means that if you’re a basic rate taxpayer, you will only need to contribute £80 to end up with £100 in your pension pot. If you’re a higher rate or additional rate taxpayer then you can claim back even more. This is subject to the annual allowance (currently £40k) which limits how much can be paid into your pension while still receiving tax relief.

Auto-enrolment

Auto-enrolment was introduced in 2012 and makes it compulsory for employers to automatically enrol their eligible workers into a pension scheme, as well as make employers contributions into the scheme. This is applicable to temporary or seasonal staff, workers with variable incomes, and agency workers (who are engaged via a recruitment agency) – except if such agency workers are genuinely self-employed. Permanent or temporary, if staff members are at least 22 years old, and make over £10,000 per year, they must be auto enrolled.

Workers can decide to opt out of auto-enrolment, however they should not be coerced into doing so by an unscrupulous employer. Self-employed people are not included within current pension auto-enrolment regulations due to the difficulties in administering this, however the  government is actively looking at ways to provide more support to self-employed people in saving for their retirement. In the meantime you would be sensible to consider setting up a personal pension – there are lots of options available, even pension schemes with very low monthly contributions for people on low or fluctuating incomes.

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