How to boost your pension so you can retire eight years early
BOOSTING your monthly pension payments by 2.5 per cent could help you retire eight years early, according to an expert.
Currently, workers who earn more than £10,000 a year are required to pay in a minimum of 5 per cent of their salary into a pension scheme.
At the same time, employers need to deposit at least 3 per cent on top. This is called auto-enrolment.
But some employers are willing to up their contributions if you want to invest more, leaving you with either a bigger pot to live off or the choice to retire early, reports the .
Research from Royal London shows that around 3million workers are missing out on £2billion worth of employer contributions every year.
For example, financial services provider Aegon says that a 30-year-old who earns £27,000 a year and plans to retire at 68 will have a pension pot of £255,333.
That's if they rely on the minimum auto-enrolment contributions.
What is pension auto-enrolment and how does it work?
HERE's what you need to know
- What is pension auto-enrolment? Since October 2012, employers have had to enrol their staff into workplace pension schemes as part of a government initiative to get people to save more for retirement.
- When does auto-enrolment apply? You will be automatically enrolled into your work's pension scheme if you meet the following criteria:
- You aren't already in a qualifying workplace scheme.
- You are aged at least 22.
- You are below state pension age.
- You earn more than £10,000 a year in 2019/20.
- You work in the UK. - How much do I contribute? There are minimum contributions that you and your employer must pay.
Minimum contributions are being gradually increased over time.
Your minimum contribution applies to anything you earn over £6,136 up to a limit of £50,000 (in the tax year 2019/20). This includes overtime and bonus payments.
From April 2019, a minimum of 8 per cent must be paid into the pension, with you contributing 5 per cent and the employer paying at least 3 per cent. - What if I have more than one job? For people with more than one job, each job is treated separately for automatic enrolment purposes. You can still opt out of individual schemes if you want.
Each of your employers will check whether you’re eligible to join their pension scheme. If you are, then you’ll be automatically enrolled in that employer’s workplace pension scheme.
But if they upped their contribution by 2.5 per cent - the equivalent of £34.78 a month in the first year - and their employer matches it then they'll retire with £414,916 in the bank.
That's an extra £159,583 to live off, or if you'd been planning on retiring with a £250,000 private pension pot then you'll be able to retire eight years sooner than planned.
Steven Cameron, pensions director at Aegon told The Sun: "Persuading your employer to "match" your extra contributions, can make a huge difference to how quickly you build up your target pension pot, giving you much more control over when you can afford to stop work."
Auto-enrolment was introduced by the government in 2012 to encourage workers to save for retirement.
The minimum amount you pay in is being gradually increased over time but you can boost it yourself by being proactive in finding out exactly how far your employers are willing to go in terms of upping their contributions.
Unfortunately, not everyone will be able to benefit from doing this though as it all depends on how much you employer is willing to contribute to your pension.
"The amount an employer will contribute varies greatly," explained Mr Webb.
"Small firms that never had a pension arrangement before automatic enrolment may stick to the legal minimum, while many firms will match what you put in up to a limit."
Adrian Boulding from Now: Pensions added: "It's well worth asking, as many workers are automatically set up with low contribution levels and could be receiving more employer money if they paid more in through payroll."
The government has today announced that the state pension is to rise by 3.9 per cent in April giving pensioners and extra £343 to live off.
If you're self-employed, you should read our guide on how you can save enough for a pension.
Regardless of whether or not you're self-employed, on top of any personal pensions you've saved you'll also get the state pension - here's how to boost yours by up to £250 a year.