Grow your pension pot
If your workplace pension is your only source of income when you retire, apart from your State Pension, and you and your employer are only paying the pension contributions required by law, it’s quite likely this won’t be enough for a comfortable retirement.
Paying in more to your pension pot
Paying in to your pension pot is also called ‘contributing’ and you’ll hear people talking about increasing your pension ‘contributions’.
If you can afford to, you should consider saving more. The more you pay in, the more tax relief is added by the government and the more you should get back when you retire.
With a workplace pension, like The People’s Pension, payments normally come from three sources:
- Tax relief from the government
- Your employer
This is how it works. Each week or month, depending on how you get paid, you’ll pay a percentage of your qualifying earnings into your pension. It will probably come out of your wages before they get paid to you.
Then, the government allows you to benefit from tax relief on your contributions (subject to certain limits). In addition, your employer also pays in an amount based on your qualifying earnings.
Say you earn £25,000 a year before tax and your employer will be paying the minimum amount in to your pension each month. Minimum payments apply to any amount you earn, including overtime and bonus payments, between £5,876 and £45,000.
So in this example (figures based on 2017/2018 tax year) you’ll be saving:
You can see, instead of taking home £12.75 in your monthly wage, you’re getting twice as much put into your pension, which over the years really adds up.
This amount will increase from now until April 2019 (subject to parliament approval) with both you and your employer paying in more to bring the minimum amounts paid into your pension account up to a total of 8% of your qualifying earnings. Your employer will let you know when these increases will happen.
Ready to make extra pension contributions?
If you want to increase your payments, talk to your employer first to see if they can set up the extra payments on your behalf. If your employer cannot do this on your behalf, then call us on 0300 2000 555. You can always reduce your pension contributions back to the minimum amounts if things change and you don’t have enough spare cash each month.
You can also set up and/or change extra payments by Direct Debit (you’ll find a form in your Online Account). This makes saving more for your retirement even easier.
Tax relief on your pension
For once it’s good news about tax. The government wants to encourage us to save for our retirement, so as an incentive, they give back the tax we’d normally pay on any money that we put into our pension.
You can sometimes even get tax relief if you don’t pay tax. Wait, what?