What Changes Are Being Made to Pensions?
- Average of £330 pay cut from this week
- Minimum amount put into pensions will increase
- Employers will have to contribute more
- Is this good for you?
From this Friday, Brits will lose out on an average of £330 a year due to changes in workplace pensions.
This is because the minimum amount that is automatically taken from your earnings for your pension will increase from one per cent to three per cent, starting on Friday 6th April.
At the same time, the employer minimum contributions will rise from one per cent to two per cent, meaning that when you access your pension, you’ll be much better off.
With the average earning in Britain at £26,624 a year, the amount you’ll put into your pension will rise on average from £164.74 to £494.21 annually, an increase of £329.47.
This figure will vary depending on how much you earn, and how much you currently put in your pension.
While you might feel a pinch now, especially with bills rising faster than inflation, you’ll be lining your pension pot for when you retire, and there will also be more from your employer.
Aegon, a pension and insurance company, estimated that with the increased contributions made by someone aged 22, by the time that person is 68 there will be a pension of £450,000.
Kate Smith, Aegon head of pensions, said, “Extra employer contributions into a workplace pension is like a pay rise, and it’s unlikely anyone would turn that down.”
The minimum contribution will rise again in April 2019 to eight per cent overall, with employees having to pay in five per cent and employers chipping in three per cent.
You can, however, opt out of the scheme to get the money now, instead of saving it for retirement.
To do that, you need to get an opt-out notice from your pension provider, fill it in, and give it to your boss.
Your employer then has to refund all the money that’s in your pension pot- though you can only do this in the first month after you’ve been opted in.
The decision to opt out could end up costing workers up to £450,000 over their working lifetime, and enormous sum of money that would effectviely be thrown away.
Before dipping into your pension, you should also be aware of what benefits pensioners are entitled to, as many miss out.