Clare Stinton, head of workplace saving analysis, Hargreaves Lansdown: “Auto-enrolment has got millions more people saving for retirement, but many are doing so blindly – one in four don’t know how much they and their employer are paying into their pension. And if you don’t know what’s going in, how can you possibly know what you’ll get out – and crucially, whether it’ll be enough to retire on your terms?
Basic rate taxpayers are far more likely to be in the dark than higher earners. Yet even 1 in 10 of those in the 40% tax bracket don’t know what they’re contributing. For higher earners this lack of awareness could be costly for those who need to actively claim any extra tax relief from HMRC on pension contributions. Failing to do so could mean leaving thousands of pounds on the table unclaimed.
With fiscal drag pushing more people into higher tax bands pensions are an increasingly powerful way to reduce your total taxable income and keep more of what you earn. It's no surprise then, that both awareness and contribution levels rise with income. The tax perks of pensions typically get more generous as you climb the income ladder, with tax relief available at your highest marginal rate.
Let’s not forget employer contributions either, if you don’t know what’s going in, then chances are you don’t know what’s on offer either. Over half of basic rate taxpayers are contributing less than £300 a month, and for many the rising cost of living may mean that there is little room to stretch further. But it’s worth checking if your employer offers salary sacrifice, if they do, you’ll save both the income tax and National Insurance on what you pay in. For basic rate taxpayers that’s a 28% tax saving, meaning every £100 into your pension could cost you as little as £72. Some employers will even boost their contribution, if you increase yours. This is known as an employer match and can really increase the amount going into your pension.
The crucial question we all need to ask ourselves is: am I paying enough into my pension to live the life I want later on? There’s no one-size -fits-all answer, but the earlier you run the numbers, the greater chance you have to adjust your course. If you can afford to pay in a little more, every pound you pay in now could be the difference between scraping by in retirement or enjoying weekends away and dinners out. A pension calculator will do the heavy lifting, just plug in your details, and it’ll project what your pot might be worth at your preferred retirement age. These tools can also model the impact of a small increase in contributions. Remember pay can change so it’s important to review from time to time and make sure you’re still on track.”
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