Your questions about workplace pensions answered

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More than eight million employees have started enjoying the benefits of workplace pensions since automatic enrolment was introduced five years ago in 2012.

These findings from The Pensions Regulator come as thousands of smaller employers set to enrol staff in the coming months.

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But there is still a lot of confusion about how workplace pensions work and the benefits of signing up.

Here we answer eight questions about automatic enrolment, so you can make an informed decision about saving for your pension.

What are the benefits of the workplace pension?

Paying into a workplace pension is one of the easiest ways to start saving for your retirement.

In the past, employees had to take steps to join a workplace pension. With automatic enrolment, most are signed up straight away and have to make the effort to opt out if they no longer want to pay in.

One of the main perks is that it is not just you paying into the pension fund. Your employer pays into it as well and you get tax relief from the government.

An added advantage is the money comes out of your pay cheque so it's already taken care of when your salary goes into the bank. This means paying into your pension becomes a regular expense, like tax, National Insurance or student loan.

Will I be automatically enrolled?

If you work full or part-time in the UK, earn more than £10,000 a year, are over 22, but below state pension age and are not already paying into a workplace pension, you will be automatically enrolled.

If you earn less than £10,000, you can still opt in to a workplace pension with all its benefits, but you will not be automatically enrolled.

Does my employer have to offer a workplace pension?

By 2018, all employers will have to automatically enrol their eligible workers into a workplace pension.

The automatic-enrolment process started in 2012 with the largest companies. The only ones that might not be offering it now are new employers who set up their PAYE scheme in April 2014 or later. These companies will start their Automatic Enrolment duties between now and February 2018.

Is the workplace pension right for me?

Short answer, probably yes.

It's the easiest and most efficient way of starting to save for your retirement. It's also a flexible option, as it allows you to change how much you pay in depending on your budget, although there is a set minimum contribution. If you're already paying into a private pension, it might be worth paying into a workplace pension instead (or as well) as you get the added benefits of employer contributions and tax relief.

However, paying into a workplace pension might not be a good idea if you're:

  • Struggling with debts. You should think about paying these off before saving for retirement.
  • Close to retirement age. The benefits and likely impact on your retirement fund get smaller if you're due to retire soon.

How can I start paying into a workplace pension?

Your HR department should be able to help you enrol if it hasn't already happened automatically.

If you are automatically enrolled, you will start paying into your workplace pension straight away. This will be at the minimum level, which is currently 0.8% of your earnings.

You can easily increase this amount by contacting the pensions administrator in your company.

How much can I pay into a workplace pension?

At the moment the minimum contribution is 2% overall, breaking down as 0.8% from you, 1% from your employer and 0.2% as tax relief from the government.

From April 2018, this is increasing to 5% overall, with 2.4% coming from you, 2% from your employer and 0.6% as tax relief.

In April 2019, it goes up again to 8%, with 4% from you, 3% from your employer and 1% as tax relief.

What happens when I change jobs?

Most of us will work several different jobs during our lifetime, so it's important to know what happens to your workplace pension when you change employer.

If you leave a company you have two options. Leave the pension where it is and claim it when you retire, or move it to a new scheme.

Talk to your pensions administrator to find out more about your options and any fees and charges involved.

What if I'm self-employed?

If you're self-employed, or if you work for someone else on a self-employed basis, there are no workplace pension responsibilities.

However, saving for your retirement is very important, so you should look into paying into a personal pension.

This article is provided by the Money Advice Service.

How we spend our pensions
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How we spend our pensions

Figures from Saga show that the over 50s now account for the majority of money spent by Brits on travel and tourism. They have the time to spare, the money, and they are healthy enough to take on the world.

A poll from Abta found that in the wake of pension freedoms, 35% of people were considering cashing in at least part of their pension to travel. A separate study by Senior Railcard found that pensioners take an average of three holidays a year, plus two weekends away, and 17 day trips.

Research from Senior Railcard found that retirees eat out an average of three times a month. However, one in ten do so more than twice a week, and one in three people said that one of the first things they did when they retired was to go out for lunch with their friends.

Of course, just because retirees want to enjoy themselves, it doesn't mean they are happy to throw money away. The vast majority are keen to eat at lunchtimes, when a fixed lunch menu tends to be cheaper, and canny retirees are skilled at tracking down pensioner special offers too.

Figures from the Office for National Statistics show that on average nearly a fifth of the money spent by people aged 65-74 is on leisure. This includes everything from the cinema and theatre to golfing and gardening. They spent more on this than on food, energy bills and transport.

A report by Canada Life found that retirees are spending £4,279 a year on having fun - that’s more than £1,000 more than they spend on boring essentials, and is a 74% increase over the past ten years. It went on to predict that this trend was set to continue, and that pension freedoms would encourage people to spoil themselves a bit more in retirement

Pensioner property wealth is now over £850 billion, and all these family homes don’t look after themselves. The Senior Railcard survey put home renovations in the top 20 activities people got stuck into on retirement, and figures from ABTA found that almost a third of people who were considering raiding their pension pots under the new pension freedoms planned to spend the cash on their home. This seems like an eminently sensible investment - looking after what is undoubtedly their most valuable asset.

Unsurprisingly, while some pensioners are very well off indeed, others are struggling with debt. Figures from Key Retirement found that the average retiree has £34,000 of debt.

Most of this is mortgage borrowing - in many cases driven up by the number of people who unwittingly signed up to an interest-only mortgage. However, credit cards, overdrafts, and loans are also common. It’s why so many pensioners have used pension freedoms to access enough cash to pay their debts.

The day to day basics are swallowing up their fair share of pensioner cash too. On average, people aged 65-74 spend a third of their weekly income on essentials like food and bills - which is hardly living the high life.
The bank of gran and grandad has become an increasingly vital source of cash for families. According to Key Retirement, of those who release equity from their property, 21% of them use the cash to treat their children and grandchildren. This includes an average of £33,350 to help children get onto the property ladder, £6,000 to buy them a new car, £11,000 on family weddings, and £24,780 giving grandchildren a helping hand.

While retirees are quite rightly spending what they need to enjoy retirement, they are hardly all throwing caution to the wind, buying flash cars and spending the kids' inheritance.

Most expect to have something left over to pass onto their family after their death. Some 69% expect to leave property in their wills, and 75% expect to leave cash - according to - because while baby boomers know how to have fun - they also know how to save for the future.


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