Not yours? Oh. Well you’re missing a trick, then. Let us explain. We’ll start from the beginning.
It’s basically a way of saving for retirement, organised by your employer. What happens is that a percentage of your pay is automatically put into the pension scheme every month. Normally your employer contributes to the pension scheme, and you get tax relief from the government too. Then, when you get old and wrinkly, you can withdraw this lump of money (which has grown over time) and buy yourself something nice. Kind of like a big piggy bank.
At the moment, workplace pensions schemes work on an opt in basis: you choose whether to sign up with your employer or not. Unfortunately, lots of people are taking their pennies, running away from their piggy banks and burying their heads in the sand.
The UK population is getting older and pressure on state resources is increasing, so the government has decided to change things up a bit with a snazzy new law.
The ‘automatic enrolment’ law, as it’s creativley dubbed, is actually a lot more exciting than it sounds. It means that employers are now legally obliged to, well, automatically enrol eligible* employees into a workplace pension scheme without them having to take any action.
Basically, workplace pension schemes are now opt out, rather than opt in.
40% of UK citizens between 22 and state retirement age will not have saved enough for a decent standard of living in retirement.
Once enrolled in a workplace pension scheme, you’ve got to pay a minimum of 0.8% of your salary a month towards the scheme. But, and this is the good part so listen up, you’ll receive 1% from your employer and 0.2% in the form of tax relief. That’s a juicy minimum 2% of what is essentially free money. What’s not to love?
We know what you’re thinking…
“I can’t afford to stay enrolled.”
“Retirement isn’t for ages and pensions are for old people.”
“I might be dead by then.”
“You only live once.”
“I want this beer now more than I will want it when I’m an OAP.”
We don’t blame you, to be honest. The idea of a putting money aside now for, say, 40 years time sounds a bit scary, overwhelming and, quite frankly, far too responsible. But trust us, it’s a really good idea. So before you opt out of a workplace scheme, have a think about the following things.
The extensive back-catalogue means that if you like it, there’s a lot to listen to from this long-running show. Great episodes include Tennessee Williams (southern drawl, old school), Simon Cowell (alarming charm)… indeed anyone with a funny voice or a surprising story.
Good for: Interesting lives beyond the dual carriageway.
Bad for: the childhood song that means a lot to celebrity x but really does nothing for you on your car journey in the rain.
There’s no such thing, right? Well there is, you just have to wait a few years for it. What’s often forgotten during the painful process of parting with £50 valuable a month is the amount of money that will land in your pension pot, absolutely free. From now until 1/10/17, your contribution will be more than doubled, so jump on that opportunity while you can!
Put simply, if you take that £50 now as a part of your salary, then you’ll be charged income tax on it. If you invest it in your pension pot, you’ll be able to withdraw the first 25% of the final sum free of tax.
Once invested, your pension money is safe. If you go bankrupt, it can’t be used to pay off debts.
So there you have it. 4 good reasons to let your employer work their pension scheme magic.
Here’s a hypothetical example of a lady who doesn’t exist called Sally, who is nailing it.
Sally is 22 and has made the mature decision to save to £50 a month until state retirement age. If Sally sticks with it, she will receive approximately £1,000 a month from her pension in retirement. That’s a nice bit of money, well done Sally.
Smart Pension is an quick, easy and, most importantly, free platform to help CEOs and other important people streamline their auto-enrolment process. If you can sense a little pension panic in the workplace, earn yourself some brownie points by suggesting they have a look.
are aged between 22 and State Pension age
earn more than £10,000/yr
work in the UK
are not already enrolled in a suitable workplace pension scheme
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