One in five have no idea what they pay into their pension every month
One in five people don’t know how much they and their employer are currently paying towards their retirement, new research shows.
Auto-enrollment means that all employees are now signed up to pay at least minimum contributions to a retirement plan, unless they actively opt out.
Free cash is also put in by employers, many of which put in well above the mandatory level to attract and retain staff, and will bring additional contributions if you pay more than the bare minimum yourself.
Automatic Enrollment: All employees are now signed up to pay at least minimum pension contributions unless they choose not to pay
Amounts contributed should be on pay stubs, which are probably online these days, or you can contact your HR department in a larger company or the office manager in a smaller company to track down the information.
Women are likely unaware of contribution levels, with 28 percent admitting they don’t know, compared to 14 percent of men in a 2000 poll by Hargreaves Lansdown.
Of those who said they knew, 21 per cent said they contributed up to £100 per month, 17 per cent said £101 – £200 per month and 11 per cent said £200 – £300 per month.
The success of auto-enrollment depends in part on inertia, where staff don’t bother waiving pensions – which you’ll have to redo every three years if you’re determined not to participate.
But Hargreaves points out that if you’re enrolled in a retirement plan, it’s worth finding out how much is going into it to work out whether your savings are on track and whether you can afford higher payments.
Who pays what: Automatic enrollment breakdown of minimum pension contributions, which are made based on a share of your earnings between £6,240 and £50,270
“Seeing a shortfall may prompt us to review our budgets to see if we can afford to pay more,” said Helen Morrissey, head of pension analysis at the financial services company.
“If your employer offers an appropriate contribution — where they increase their contribution if you do — that can be a huge added incentive, helping you to have a much more comfortable standard of living in retirement.”
Morrissey says not checking contributions means you may not be aware of the big impact that free employer money and government tax credits have on your final fund – see below for who pays what.
“It’s essentially free money and it’s best to make the most of it whenever possible,” Morrissey adds.
‘Regularly testing your pension premium, for example when there is a pay rise or a new job, can be a good approach. It’s extra money that you’re not used to spending yet, so it’s easier to convert that into a pension.’
How much can additional contributions increase your pot?
A 25-year-old who earns £30,000 a year and contributes to the automatic enrollment minimum – 8 per cent, split between you, your employer and tax relief – could have a pot of around £168,000 by the time they reach 68- years of age, according to Hargreaves’ calculations.
But if you increase your contribution by £50 per month, this could be increased to £210,000, and an increase of £100 would increase this to £250,000.
That is based on someone saving from the age of 25 and retiring at age 68 with an annual investment growth of 5 percent and an annual compensation of 1.5 percent.
What about your old pensions?
STEVE WEBB ANSWERS YOUR PENSION QUESTIONS
If you’re automatically enrolled in a pension for every job, it’s easy to lose details of old jars, especially if you haven’t stayed with an employer for long — but it’s worth keeping track of.
About 24 percent of those polled by Hargreaves said they’d lost track of a pension, with another 22 percent unsure.
“Over time, it can be easy to lose track – you may change jobs or homes and not update your contact information,” says Morrissey.
“You may think your lost pension is very small and doesn’t matter, but the growth of long-term investments will make them grow over the years, so they could be worth a lot more than you think. ‘
She cited research from the Pensions Policy Institute showing that the average size of a lost pot is over £9,000, so for some people it will be much more.
“Finding a lost pension can be the difference between struggling to make ends meet or retiring more comfortably. It may mean that you can afford to go part-time in the years leading up to retirement or that you don’t have to work as long.’
If you have lost track of old pots, check your old papers. If that doesn’t work, then The government’s free pension tracking service is here.
Be careful when searching for the Pension Tracing Service online, as many companies with similar names will appear in the results.
These also offer to look for your pension, but try to charge or whip you for other services, and may be fraudulent.
Hargreaves offers the following tips for finding old jars:
– The government’s investigation service will not tell you how much is in the pension, but it will help you find contact details.
– You need the name of the company where you worked, the name of the pension scheme or the name of the pension provider.
– If you prefer to speak to someone, call the Investigation Service on 0800 731 0193.
– When you move, it is worth adding pension providers to the list of people you should inform, so that they have up-to-date contact details for you and you do not miss any important communication.
– If you move, it’s a good idea to set up a redirect for your mail for a year so you don’t miss any communication.
How to arrange your pension if you are afraid that it will fall short
1) If you’re worried about saving enough, research your existing pensions. Broadly speaking, you should ask schematics the following questions.
– The current fund value.
– The current transfer value – as there may be a penalty for moving.
– Whether the pension is in a final salary or defined contribution scheme. Fixed contribution pensions take contributions from both employer and employee and invest them to provide a pot of money at retirement.
Unless you work in the public sector, they have now largely replaced the more generous gilded ones defined benefit – average or final salary – pensions, which provide a guaranteed income after retirement until your death.
Defined premium pensions are stingier and savers bear the investment risk, rather than employers.
– Whether there are guarantees, for example a guaranteed annuity, and whether you would lose them if you moved the fund.
– The pension forecast at retirement age. You can use a retirement calculator to see if you’ll have enough – these are widely available online.
2) You need to add the predicted figures to what you expect to get in state pension benefits, which is currently £203.85 a week or about £10,600 a year if you qualify for the full new rate. Request an AOW forecast here.
3) If you’re tempted to pool your old pensions, read our guide first to make sure you don’t get fined.
4) If you have lost track of old pots, the The government’s free pension tracking service is here.
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