We all know the importance of saving for our pensions – but it turns out that we could be missing out on £650 a year, simply because we’re not aware of how employee pension contributions work.
And, according to insurers Royal London, as many as 3.2 million employees could be missing out on pension top ups.
Many firms, particularly larger ones, often promise to top up their employees’ savings should they put away the maximum amount, rather than the minimum amount. Essentially, if you’re willing to contribute more, your employer is willing, too.
Graham Vidler, who acts as director of external affairs at the Pensions and Lifetime Savings Association, applauded the study, saying:
‘This research highlights how much UK employees could be missing out on each year. It is also vitally important that people start saving into a pension as soon as possible as the longer you save, the bigger your final pot is likely to be and the more you can benefit from your employers ‘matching’ contributions.’
He added that there were two primary benefits of saving more, outside of that comfortable retirement we’re all looking forward to:
‘If your employer offers a workplace pension, you should certainly consider joining and putting in as much as possible as if you don’t you will miss out on free money in the form of employer contributions as well as the tax relief.’
The trouble is, too many of us simply save the minimum amount, thereby doing ourselves out of the extra income we could have in our retirement.
So, let’s say you earn an average salary. By saving an extra 3% in ‘matched contributions’, you’d walk away with a pension of £22,500. If you’re not having your pensions matched by your employer, that figure drops to £19,050.
Royal London named several nationally recognised companies as examples of those who top up the pensions of employees, and they include Tesco, Royal Mail, BAE and Vodafone.
And they even heaped praise on building society Nationwide, who now ensure that savers automatically contribute the maximum amount, in order to make the most of their money in later life.
It’s a start. However, former pensions minister Steve Webb, who is now Royal London’s director of policy, has warned that a campaign of awareness is required.
‘At a time when money is tight for many people and pay rises may be limited, getting your employer to contribute more to your pension can be a very cost-effective strategy. When individuals are thinking about where to put their money to get the best return, the chance to more than double your money through an employer contribution and tax relief from the government takes a lot of beating. Much more needs to be done to make workers aware of the money their employer will add to their pension if they are willing to contribute at a slightly higher level.’
Webb cautioned that ignoring your pensions, and focusing on alternative saving methods, just isn’t going to bear fruit.
‘Lots of people work for firms who will add generously to their pension scheme if they are willing to save beyond the basic minimum, but take-up of this offer is generally very poor. At a time when wages are not growing much and we wonder how people can find the money to save for a pension, missing out on “free” money in this way – and perhaps saving in a cash Isa instead – looks like a really questionable strategy. Getting your employer to contribute more to your pension can be a very cost-effective strategy.’
And when the price is losing £650 a year, it’s worth working out how much you can afford to top up your pension – and whether your employers contribute the same.