How you pay in to your pension
You pay a percentage of your wages in to your pension, and these are topped up by your employer and the government. These are called contributions.
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.
Next: Grow your pension pot