Do nothing and boost your pension saving
as whether in future the state pension alone will be enough to live off is questionable. This is about saving now, so your living standards don’t plummet later.
So it’s thankful that the lazy option of DOING NOTHING means you’ll automatically be saving towards your pension.
Many people are scared of making financial decisions, and inevitably most of us are guilty of sacrificing the future for the now. This way, make no decision, and it’s hopefully the right one.
And if you are really thinking of opting out because you need more take home pay, you may be able to reduce your contributions and still get something from your employer – it’s worth checking.
How to pay HALF your pensions cost
In the 2019/20 tax year the tax for most people works roughly as follows (it’s slightly different in Scotland).
■ Personal allowance on earnings up to £12,500 (the amount you can earn with no income tax)
■ On income from £12,500 to £50,000 you pay the basic 20 per cent rate of tax
■ On income above £50,000 until £150,000 you hit the 40% rate.
■ All income over £150,000 is at 45 per cent.
Yet pension savings come from PRE-TAX salary. Putting £100 a month in your pension (the likely contribution of someone on a typical £24,000 salary) only reduces a basic rate taxpayer’s pay packet by £80, a higher 40 per cent rate taxpayer’s by £60.
Plus as on the minimum contributions level, if you put in £100, your employer must put in at least £60, so there’s a total £160 added to your pension, but that only costs you £80 (£60 at higher rate) in other words half the cost. That’s unbeatable.
And if you are thinking ‘but all pensions are rubbish’, actually that’s not true. A pension is a tax efficient way to save for your old age.
The issues haven’t been with pensions themselves, but with what most people were told to invest their pension cash in – which for many years was dismal.
Thankfully while things still aren’t perfect, and there are no guarantees with investments, most modern pension investments are much more transparent and the charges are lower.