BRITS could double their pension pots with a little-known trick.
There’s a simple way for those paying into a workplace pension scheme to boost their income on retirement, according to experts.
Millions could boost their nest egg by asking their employer to match their pension contributions
Experts at Hargreaves Lansdown suggest that employees should look into asking their employer to match their contributions.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown said: “Many employers stick with their auto-enrolment minimums when it comes to workplace pensions.
“But if you have an employer who is willing to do more then this could have a massive impact on how much you end up with in retirement.”
A workplace pension scheme helps employees save for their retirement outside of the state pension.
Since October 2012, employers have had to automatically enrol workers into one of the schemes.
There are minimum contributions that you and your employer must pay.
A minimum of 8% must be paid into the pension, with you contributing 5% and your employer paying at least 3%.
For example, someone working full-time at 22 with a salary of £25,000 and who expects a 5% annual growth in their investment would come out with a pot worth £150,000 when retiring at 67 if they made the minimum contributions.
But workers should assess boosting the amount that they save into their pot and see if their employer will match this.
Helen said: “An employer match – where your employer contributes more if you do – is a great way of making the very most of your pension and benefiting from free money.”
“If the matching arrangement worked so that the employer pays more if the member does, then the benefit is further increased.
“If the employer matched a 6% contribution (giving 12% overall) then you could see a pension pot worth around £225,000 at retirement.
“And If they matched up to 8% then the pension could swell further to around £300,000.”
An 8% matched contribution would provide a retiree with a pot that’s worth double the value of those making minimum contributions.
You’ll need to ask your supplier if they’d be willing to match your contributions if you choose to save more than the minimums.
With workplace pensions, the government will usually add money to your workplace or personal pension in the form of tax relief.
For a basic rate taxpayer, every £80 of pension contributions gifted to you will have another £20 added on top to make £100.
It’s important to note that even if you’re already quite far into your career, adding a little extra to your fund each month will help.
If you’re unsure how much you can top it up by it’s best to consult experts and make sure you can afford the increase of course.
What is a workplace pension and auto-enrolment?
Auto-enrolment is when you’re automatically placed into your workplace pension scheme, with your contribution deducted from your pay packet.
Employers have had to automatically enrol staff into pension schemes since October 2012 to get workers saving for their golden years.
The only exception is if you’re under the age of 22 or earn under £10,000, in which case you have to ask to opt-in.
But in March, MPs backed a private members’ bill that would reduce the pensions auto-enrolment age from 22 to 18.
The bill would also abolish the lower earnings limit, which the government has said would encourage employees to start saving for their retirement earlier in their careers.
The change is expected to pass into law at a later date.
The lower qualifying earnings limit, the point at which an individual’s employer must start to calculate pension contributions, is currently £6,240.
A minimum of 8% must be paid into the pension, with you contributing 5% and your employer paying at least 3%.
Crucially, the contribution you make as an employee is deducted before tax.
For example, if you pay 20% tax on your earnings, and your pension contribution is £100, this only really costs you £80 as this is how much that amount would have been worth after tax.
While opting out of a workplace pension would increase your monthly salary, it’s best to only do this as a last resort, as you’ll have less in later life.