Why you shouldn't ignore the workplace pension
Planning for your retirement is one of those things that can be tempting to ignore - a bit like a damp patch in your home.
The thought about dealing with it, and the cost of sorting it out can be off-putting, but the truth is, the longer you leave it, the worse it's going to get.
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Many people don't love the idea of putting some money aside from their pay cheque, and in the past many people were not offered a pension at work at all.
However, the good news is the law has changed, and the Department of Work and Pensions is running a new campaign to nudge employers and employees to not ignore the workplace pension.
Thanks to the new rules, most workers will be automatically enrolled onto a work pension, whether it's in a massive company with hundreds of people, or if it's just you and your boss. The reality is even though you're paying into your pension pot every month, it's a lot like getting a pay rise because your employer and the Government also puts money into your pot. That's free money you wouldn't have if it wasn't for the pension.
Also, most of us don't want to be forced to work well into old age and would ideally like to relax after a lifetime of hard work. The truth is if you're not working - you're going to have to pay for this in some way. The workplace pension is the perfect way to do this.
You'll be able to access your pension pot at the age of 55, and until then it will be held for you by a pension provider which your employer will choose. You will be given the chance to decide on how risky you want your investments to be, as well as there being options for people to choose Sharia-compliant or ethical funds.
In fact, over 8 million people are already benefiting from a workplace pension and saving for their retirement.
Who can get a workplace pension?
The vast majority of workers are entitled to a workplace pension, and it doesn't matter what kind of work it is, or how big the company is.
You're entitled to a workplace pension if you fulfil the following criteria:
- You're not already in a workplace pension scheme
- You are between the 22 and State Pension age
- You earn more than £10,000 per year (£833 a month, £192 a week), just from one job
According to the Department of Work and Pensions, from the end of September 2017, over 8.7 million people have been automatically enrolled and more than 800,000 employers have met their duties.
If you haven't already been enrolled and you are eligible, you very soon will be – it's not an option for your employer, it's the law.
How much money will I have to contribute?
From 6th April 2018, the minimum contributions for the workplace pension will increase. The minimum you can currently put in is 1% of your wage (it's the same for your employer), meaning you will be saving 2% of whatever your wage is each year before tax earnings.
From the 6th of April 2018 to 5 April, the minimum contribution goes up to 2% for your employer, and you'll have to put in at least 3%. This means you'll be saving 5% of your wage a year for your retirement.
Of course, you can put more money in your pension pot if you wish, and your employer can also increase contributions too.
Try out this calculator to see how much money will be put into your pension each year.
Can I opt out of the workplace pension?
In an ideal world, you'll be paying as much as you can afford into your pension so you have plenty to live off and can retire when you want to.
You can opt out, however that means that you'll be missing out on contributions from your employer and the Government. Don't forget, if you pay income tax, you'll also get money from the government in the form of tax relief.
However, you may decide that you need all of your monthly pay to make ends meet and just can't spare the money for the time being. The good news is you can opt in and out of the workplace pension whenever you like, so can put in (or not put in) what you can afford.
If you do opt out, if you remain at your current place of work for three years, or you move jobs, then you'll be automatically enrolled again. You can of course opt out at that point if you wish.
You'll be given a letter about the scheme when it starts at your workplace which will tell you who your pension provider is. You can then contact that provider to ask for an opt-out form.
This article is provided by the Money Advice Service.