Whilst pensions seem to have a near constant presence in the media, it has become apparent that not many of us know much about our own. Many a discussion has taken place over the last 2 years over what to do when you have access to your pension. However, those who have not yet hit retirement age remain unaware of the details of their investment. In a recent survey conducted by Portus Consulting of 1,043 UK employees, it was revealed that 50% of respondents did not know how much they were putting away for retirement.
Almost 17% of those surveyed had already built up three or more pension funds, making it even more difficult to keep track of their investments. Only 11% believed that they could estimate the value of their total retirement savings and investments with accuracy. A further 39% could give an approximate value but were not confident enough to pin down an exact amount. Furthermore, of those in the 45-54 age bracket, 27% have retirement savings in three or more pension schemes.
In addition to not knowing what they are saving, many people are unaware of what they should be saving. It stands to reason that the earlier you begin saving for retirement, the less you’ll have to contribute each month.
The standard rule of thumb is to take your age and divide it by two. However, this is by no means a defined approach. More of a rough guide. So, if you’re 25 then this equates to 12.5% of your salary per month. Remember that this figure includes the contributions of all who are expected to add to your pension pot. This may be yourself, your employer and perhaps even the Government.
Leaving it till later in life to save for retirement will ultimately lead to you paying more in contributions each month. Starting early is always the best option, even though it seems far away. Your future self will thank you!
Tax relief is given on all contributions that you make to your pension. The level of tax that you’ll get back will depend on your tax rate. If you’re a basic rate tax payer, the HMRC will look at your contribution amount, using it to calculate your pre-tax earnings. You’ll then receive the difference between this pre-tax figure and your contribution.
It works slightly differently for those on a higher tax rate. In additional to the 20% tax relief, you will be entitled to an additional 20% or 25% percent. However, it is likely that you will have to claim this additional relief. Always remember to check, as the extra rate will not be paid unless it has been claimed.
If you’re part of a workplace pension, then it’s likely that the above information will not apply to you. In this case, your contribution comes from your pre-tax earnings so it is never taxed.
Everyone can benefit from learning more about their pension contributions. Planning for retirement is essential. Should you need guidance on how to budget for the future, our financial planning service offers insightful advice and can help you to plan for every stage of your life. Our auto-enrolment platform is also available for businesses nearing their staging date. You’ll benefit from an end-to-end auto-enrolment solution, with no minimum or maximum number of employees required to join. For further information on any of our services, get in touch. We’d love to hear from you.