Did you know that minimum contributions to workplace pensions are increasing from 5 to 8 per cent? That extra 3 per cent will be made up by HMRC and employers, but also by employees. With women already facing different financial difficulties to men, putting money into a pension is likely to be at the very bottom of our to-do list. Women often prioritise ‘now’ when saving. This can be for a new boiler, the car needing to be fixed or even to buy the new must-have gadget. However, it’s also worth thinking about your future and saving for the retirement you want.
Are we putting enough money aside for our futures?
Scottish Widows recently conducted some research into how much we’re paying into our pensions. Their Women and Retirement report concluded that many women don’t plan their pensions early enough. In fact, a third of young women don’t save adequately. This is particularly concerning considering that women statistically earn less and live longer.
This is one of the problems that auto-enrolment sought to deal with. The increase from 5 to 8 per cent in contributions towards your workplace pension takes it one step further. The figures may sound daunting, but the figure is also made up from your employer and the Government. So in many cases, your additional monthly contribution is relatively small. What’s more, the difference it makes when you come to retire could be huge.
What will the auto-enrolment increase mean for you?
Taking a salary of £27,000 as an example, Scottish Widows work through the figures on their website. At the 5% contribution rate, someone on this salary would have been adding £1350 to their pension pot every year. With the new 8% rate, £2,160 is added each year. Half of the contributions come from employers and HMRC. Which leaves an extra £36 per month coming out of the employee’s salary. A 25 year old who continues to contribute at this rate for the rest of their career would end up with an extra £55,100 in their pension by the time they retire.
If you don’t happen to earn exactly £27,000 per year, this may seem a little irrelevant. So, head to the Scottish Widows pension calculator to find out exactly how much you will pay per month when the increase comes in. The calculator will also show you the difference this will make to your pension pot. When you look at the figures I think you’ll agree, a small change now could make a big difference by the time you retire.
I don’t mind admitting that I didn’t make many good financial decisions when I was in my 20s. The big wide world was calling me and I used all my holidays and all my money to travel. I don’t regret it for a moment, but it has meant that I’ve always lived hand-to-mouth. Not ideal when you suddenly become responsible for two small people. Fortunately though, the one good decision I did make was to opt-in to workplace pensions.
Nearly seven years ago, my eldest daughter came along. I went back to work when she was just three months old. My commute was an hour and a half each way and most of the time that tiny baby was awake, I was away from her. It wasn’t long before my priorities changed and I turned my back on my career. I’ve never been able to afford not to work, but most of my time since then has been spent freelancing. As a freelancer, there’s no auto-enrolment and no workplace pension. There’s no spare cash at the end of the month and I can’t physically manage to find any to continue paying into my pension.
So, that solitary good decision I made in my twenties might be the only thing standing between me and pension poverty in the future. I hope to be able to pay into a pension again later this year, but there will always be a large gap where I paid nothing. If you’re considering opting out due to the percentage increase, please do head over to the Scottish Widows website. They lay out the facts in a way that is easy to understand. So, you’ll know exactly what the change means to you both now and in the future.
This is a paid partnership with Scottish Widows. Pensions are a long-term investment. The retirement benefits you receive from your pension plan will depend on a number of factors including the value of your plan when you decide to take your benefits which isn’t guaranteed, and can go down as well as up. The value of your plan could fall below the amount(s) paid in.