Look towards a sunnier retirement
Everyone wants a life that is enjoyable and free of money worries. As we get older, the last thing we want to do is to scrimp and save. But it is perfectly possible to have a comfortable retirement with enough for some of the nicer things in life, like presents and treats, nights out and holidays.
The secret is in saving a little every month. Over time, it can add up to a sizeable pot of money which will help fund your retired years or even decades.
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Now, an exciting new workplace pension law is about to be launched which will help qualifying employees to save for their futures. And the really good news is that your boss will also make a contribution – and the Government helps out too by giving you tax relief.
Unfortunately, not enough of us are currently securing our futures. A survey conducted last year by Scottish Widows discovered that fewer than half of employees are contributing to a workplace pension.
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The State Pension is a foundation (the full basic amount in 2012/13 is £107.45 per week for a single person), but you may want more. Remember that retirement does not come cheap and that the cost of living is constantly rising. Think about how much things like travel, food and energy bills have gone up in recent years. You will still need the funds to afford them when you are older.
That's why the Government is changing the law to encourage you to save for your future in a workplace pension. Starting from October, employers will automatically enrol you into a suitable pension scheme and you will invest a small amount of your salary every month. And the really good news is that both your boss and the Government will add extra cash into your workplace pension pot too. The law will affect largest companies first and will then roll-out to medium and small companies over the next few years.
Eventually, you will pay £4 of every pensionable £100 into your workplace pension from your gross salary. Your company will then add the equivalent of another £3 (for every £100), and the Government will put in another £1 in the form of tax relief. These percentages do not apply to all your earnings, but just to what you earn over a minimum amount (currently £5,564 per year). So for every £4 you pay in, your pension is topped up with another £4. In other words, you've already doubled your money without even trying!
This might seem too good to be true, but it isn't. In fact, it has been very carefully considered by the Government, and the beauty of it is that it makes sense to everyone involved – including you.
Your employer will write to you letting you know when you will be automatically enrolled into a workplace pension. Staying in is up to you – you can opt out. But remember that if you decide not to join, you will lose out on the contributions you, your employer and the Government make into your own pension pot. Opting out will not make the problems of finding a convenient way to fund a comfortable future disappear. Automatic enrolment into a workplace pension helps you address this now.
If you are buying your own home, you might think of your bricks and mortar as your main retirement fund. But if you sell your home and release that cash, you will still need somewhere to live. And, as we know from current experience, it can take a long time to sell your house.
There are several other advantages to having a workplace pension. While any investment can go down as well as up, you will be joining a good scheme that meets strict qualifying criteria. It is your employer's responsibility to do all paperwork on your behalf, making it hassle-free for you.
Your pension fund is still yours to keep, no matter how many times you change jobs.
It is never too late to start planning for your retirement. And the sooner you do, the bigger the pot you will end up with.
As your money is invested for you by the pension provider, it should also grow by itself with interest. The longer you have it in the fund, the more it should make. And when you come to retire, your pension pot will be bigger.
So it really is win-win – just make sure you're part of it!
Comments
by Exegesis
Wednesday, September 26 2012, 3:16PM
“When I was working, the Government promised that my pension would be safe "whatever happens to your employer". Well, after 20 years of contributions, my employer went bankrupt and my pension pot was reduced to less 30%. After being dragged through the courts they did put in place a compensation scheme (the FAS) but I will still get less than half.
Under auto-enrolment, there are no promises at all. The trustees and investment bankers are guaranteed to get their fees. the employer can walk away from it if it goes wrong, it's the poor old worker who carries all the loss. And he can't get his money out until he retires. By that time, there is no guarantee at all that any pension income won't be set against means-tested benefits.
And don't go thinking that your are getting free money from your employer. Their contribution is a payroll cost, so they'll just set it against future pay rises.
By all means make provision for your retirement, but do it in a way which allows you control over your investment so that you can get at it if you need it, or if they change the rules. Putting it in ISAs is a common choice.
I wouldn't touch this with a bargepole.
I'm out!”