Saving into a pension
You may not have 'save for my retirement' at the top of your
list for ways to spend your hard earned cash. However, over half of
the UK population are not saving enough (or at all) for their
retirement. This means that over half of the UK population are
facing 'retirement poverty'.
You may have noticed that there has been a lot of news surrounding
pensions recently and whilst it may seem boring and complicated, it
is very important that you take some time to understand the basics
and make plans to ensure that you are saving enough for a
comfortable retirement. It is also important to plan to ensure your
pension lasts. Recently introduced pension freedoms give us greater
flexibility and access to our 'pension pots', but whilst it might
be tempting to dip into our pension early the last thing we want is
to take too much too soon and then run out of money.
What is a pension?
Most pensions are 'defined contribution' schemes, which
are long term savings plans with added tax relief. You make
contributions throughout your working life, so that when you retire
you can use those savings to provide yourself with an income
throughout your retirement.
Most people, who are already saving into a pension, contribute
into the pension scheme provided by their employer. The amount you
and your employer contribute varies based on the scheme you are in.
Some employers provide 'final salary' or defined benefit' pension
schemes, which provide a pension linked to pre-retirement earnings
depending on how many years you have worked for the
Up until now employers haven't had to provide their employees
with a pension scheme which they can pay into. A law introduced in
2012 stated that all employers must offer a workplace pension
scheme and automatically enrol eligible employees in it. This
applied to larger employers from October 2012 and will be
applicable to all employers by 2018.
Until recently it has been your decision to join your employer's
pension scheme. Now, all eligible employees will be enrolled by
2018 unless you choose to opt out. The Government has introduced
this new law to try to ensure that people have enough savings for
their retirement needs.
The minimum contribution is currently set at 2% of what you earn
annually. This is split between you (0.8%), your employer (1%) and
the remaining is tax relief (0.2%).
You are likely to be entitled to a State Pension. This is
paid to you once you reach State Pension age. In order to qualify
for the full basic State Pension you need to have paid 30 years of
National Insurance contributions. If you do not have a full 30
years of contributions you will receive less on a sliding scale.
The State Pension isn't enough for most people to live comfortably
The Government is planning to introduce a new flat rate State
Pension which will pay about £144 a week in today's money and you
will need to have 35 years of National Insurance contributions to
receive the full amount. This applies to anyone who reaches State
Pension age on, or after, 6 April 2016.
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