Pension loophole hits 1million workers with more than one job – how to fix it and get £1,000s extra
ALMOST one million workers with multiple jobs are missing out on pension contributions from their employers.
Bosses have had to automatically enrol staff into pension schemes since October 2012 to get workers saving for their retirement.
However, you must earn at least £10,000 per year from a single employer to be automatically enrolled onto the scheme.
It means workers with several jobs that each pay less than the threshold don't qualify for auto-enrolment, even if their total earnings are above this.
Anyone earning less than £10,000 can still ask to put onto a scheme, but only those who earn more than £6,240 have to get the top-ups.
Almost half of workers with more than one job earning under the £10,000 threshold aren't currently enrolled into a workplace pension, according to new analysis by Scottish Widows.
What are auto-enrolment pensions?
AUTOMATIC enrolment is a government scheme to help more people save for later life through a pension scheme at work.
All workers aged between 22 and state pension age earning more than £10,000 a year are automatically enrolled into a scheme.
Anyone earning less than this has to ask to be put onto a scheme, but only those who earn more than £6,240 will benefit from the top ups.
People who earn more than £10,000 a year but across multiple jobs are also excluded from auto-enrolment.
Employers must contribute a minimum of 3% into a pension scheme and employers have to put in 5% from their salary.
Those are just minimums though and while it may be hard to persuade your boss to increase their contributions, you can increase yours if you can afford it.
Putting an extra 1% towards your pension now could boost your retirement pot by 25%, according to research.
This equates to more than 922,000 people, who collectively lose out on £76million a year.
With over four million Brits having more than one job, the pension provider is calling on the government to scrap the automatic threshold.
Pete Glancy, retirement expert at Scottish Widows, said auto-enrolment has been a "gamechanger" for boosting pension pots across the UK.
However, he added: "Those whose income comes from more than one job are losing out significantly relative to those with the same income from a single job.
"A shift towards more multi-jobbers will reverse some of the gains made by auto-enrolment, so the argument to remove the earnings threshold is getting stronger and should be a top priority for the next evolution of the scheme."
In January, the government confirmed the £10,000 automatic threshold would remain for the current tax year, which runs until April 5, 2022.
But a few months later, the pension minister then confirmed the earnings limit will be axed from the mid-2020s.
A spokesperson for the Department for Work and Pensions (DWP) told The Sun it aims to abolish the lower earnings limit for contributions altogether as well as reduce the age for being automatically enrolled to 18.
It added: “In introducing automatic enrolment we focused on getting the right balance between ensuring that the people most likely to benefit from saving are brought into pensions, and the affordability for individuals and employers.
"We’re committed to building on this, enabling people to save more and to start saving earlier.”
What to do if you're missing out
Unless you never plan to retire, the first thing to do if you don't automatically qualify for contributions is to join your workplace scheme.
As long as you earn more than £6,240 from one employer, you'll still get the contributions - but it's up to you to sign up.
Your employer has to contribute if you earn at least £6,240, but it's worth asking if they will even if you earn less.
Workers with a part-time job of £7,000 a year who sign up to the scheme will currently get £22.80 in yearly contributions from their employer on top of their own savings of £38 a year.
If you stay several years and thanks to compounding over time, this pot can grow in value to thousands of pounds.
What are the different types of pension?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (Sipp) - This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension - The Government has made it so it's compulsory for employers to automatically enrol you in your workplace pension, unless you choose to opt out. These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions rose to 8% in April 2019, with employees now paying in 5% and employers contributing 3%. This is up from the 5% of contributions workers and companies were required to pay in previously, where employees contributed 3% and employers 2%.
- Final salary pension - This is a also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year on retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore.
- New state pension - This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £179.58 a week and you'll need 35 years of national insurance contributions to get this. You also need at least ten years' worth of national insurance contributions to qualify.
- Basic state pension - If you reached the state pension age on or before April 2016, you'll get the basic state pension. The full amount is £137.60 per week and you'll need 30 years of national insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those who have built up national insurance contributions under both the basic and new state pensions will get a combination of both schemes.
Becky O’Connor, head of pensions and savings at Interactive Investor, told The Sun: "Employers contribute to work pensions too, so in effect you are getting free money from your employers – think of it as deferred pay.
"The minimum employers must now pay in is 3%, and you will pay in a minimum of 4% of your qualifying earnings, plus tax relief.
"This is equal to your tax rate, so 20% if you are a basic rate taxpayer."
Before you sign up, it's worth double-checking the type of pension scheme you'll be on as it's especially important for low earners.
For example, "relief at source" schemes are better than "net pay" ones if you earn below the personal income tax allowance of £12,570.
This is because they still allow you to claim tax relief, even as a non-taxpayer. Yet net pay schemes are more common, Ms O'Connor added.
Alternatively, if you often change jobs and don't want to leave a trail of pension pots behind you, consider opening a self-invested personal pension (SIPP).
Ms O’Connor said: "With SIPPs, you can ask employers to pay into these for you, so you still get the benefit of employer contributions into a pension, without having to join the workplace scheme.
"Bear in mind that not all employers will do this, but it is certainly worth asking.
"This way, you get to keep your pension in one place throughout your years of job-hopping and having multiple employers at any one time – and you are not sacrificing your future to get by today."
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Research has previously found that around 2.5million workers are missing out on employer top-ups because they don't earn enough to qualify.
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