BOOST YOUR WORKPLACE PENSION

Automatic enrolment into workplace pensions is a great success story – getting millions more people to put something away for their retirement.

Latest figures from the Department for Work and Pensions show 19.2 million workers – more than 80% of those eligible – are now saving via their workplace pension, up from 55% in 2012 when auto-enrolment began. The amount saved last year was £98.4billion, up £5.3billion from 2018.

But there are concerns the Covid-19 crisis has put pressure on incomes and some may not stick with savings and opt out.

Those saving just the legal minimum – 5% from workers and 3% from bosses – who can afford to, may want to think about putting a little more away. Pension experts say that we need to be saving between 12% and 15% of our income to give us enough to live off during our retirement years.

Andrew Tully, technical director at finance giant Canada Life, says: “Auto enrolment has been a huge success. With the minimum contribution you actually pay 4%, Government tops this up with 1% of tax relief, and your employer pays 3%.

“Although it’s a good start, don’t expect that 8% to fund a lavish lifestyle when you retire. And despite the current financial pressures, don’t opt out as you are effectively giving away free money.

“In fact, you might still be disappointed at the size of your pension pot when you retire with this level of savings. If you can, try and make additional contributions, and it’s also worth checking if your employer matches your extra contributions. One way of thinking about that is as a free pay rise.”

As figures from Canada Life show, due to the power of interest compounding, even small changes to contribution rates can make a significant difference to your pot.

If someone earning £20,000 at age 20 joins their employer’s pension scheme and saves 4% of earnings throughout their working life, topped up by 3% from their employer and 1% tax relief, the total contribution is 8%. The pension could be worth £643,565 at state pension age, which is due to rise to 67 by the year 2028.

Alternatively, if they choose to double their contribution to 8% of earnings, and with their employer making a contribution of 4%, alongside tax relief the total contribution is 14%.

At that level of saving the pension could be worth £1.13million at age 67.

*Based on earnings rising by 4% a year, and an investment growth of 5% a year. Figures not adjusted for inflation.