Do you like personal pensions? Most people will answer no to this question.
But let me re-frame it. Do you like FREE MONEY and would you like income in retirement that’s more than the state pension?
If you do then it makes sense to maximise your pensions at work. Take advantage of your employers contributions. Here’s the current minimum contributions of work place pensions
3% - employer
5% - employee.
It’s essentially a 3% increase on your salary. You just can’t touch it until you’re within 10 years of your state pension age. Some employees match increased funding. If you put in 6%, they’ll put in 6%. I’ve seen matches as high as 10% each. That’s 20% of your salary going into a pension.
Some employers pay it all.
Either way there’s FREE MONEY in there.
Many employers also offer salary sacrifice. This is where you temporarily ‘give up’ the part of your salary (that was being paid into a pension). Your employer then pays their contribution and your ‘given up’ contribution into your pension. You save income tax and NI (your salary is lower) and your employer saves employer NI (to the tune 13.8% of your salary you’ve given up.
Lot’s of employers will pass some (if not al) of this NI saving into your pension too. This is a win-win-win. You pay less tax, they pay less NI, you get more in your pension.
There might be other benefits too if your salary was over the threshold for losing benefits or paying more tax. For example, child benefit starts reducing if a parent earns over £50,000. Personal allowance gets reduced if your earnings go over £100,000.
If your employer doesn’t do this ask them to consider it. After all it’s a cost effect way to attract (and retain) talent that is tax efficient and cost effective for the business.
If you run your own business you should definitely be doing this. Now. It’s a great way of extracting value from your company in a tax efficient manner. And your pension funding is almost certainly a long way behind that of ‘committed to pensions’ employees.
The best time to start a pension was 10 years ago. The second best time is today. Stop waiting. Start doing.