If you’ve recently got a new job, or been in your role for a few months, keep in mind the importance of continuing to save into a workplace pension. Taking some time now, to think about what you want your retirement to look like, can help you determine if you're contributing enough to your pension to fund the lifestyle you want later in life.
Start by understanding your new employer's pension scheme and what they offer in the way of benefits, which could help you boost your savings. At the same time, you'll need to keep track of any previous pension pots, particularly if you've worked for multiple employers.
Getting to grips with the basics of workplace pensions
Once you start a new job, your employer normally has to automatically enrol you into their workplace pension scheme, if you meet specific requirements. These schemes take a portion of your salary and place it into a fund, which is then invested to provide you with a fund to be used later in life. A key benefit of a workplace scheme is that, unlike a personal pension, your employer may top up what you put in with a contribution of their own.
Another benefit is that for any contributions you pay, you’ll also receive a top-up payment from the government, known as tax relief. The amount you'll receive is based on a percentage of the amount placed into your scheme and the value of any tax relief will depend on individual circumstances.
Employers have to contribute a minimum of 3% of an employee’s salary to their workplace pension. The minimum total contribution is 8%, and the employee must pay the rest, unless the employer wants to pay more. These are only the minimum legal requirements. Your workplace scheme may take larger contributions from your monthly or weekly salary, and some will match your contribution as an incentive for you to save more. The amount placed into your pension should be highlighted on each payslip.
Your workplace pension is probably in a defined contribution scheme – sometimes called a money purchase scheme. This simply means that the money contributed to the scheme is invested, and the sum you can access on the day you retire, is based on the contributions made during your working life. Remember, the value of an investment can fall as well as rise and isn’t guaranteed. The value of your pension pot when you come to take benefits may be less than has been paid in.
Paying close attention to the fund your pension is invested in and how it works is also important, as it will likely have an impact on your retirement income. It’s something that might affect the lifestyle you can expect once you’ve finished working. You should double check with your employer which scheme and fund you’re invested in. If it’s not matching your values or appetite for risk, you can consider switching. However, you should speak to a financial adviser before making any decisions – there may be a charge for this.
Keeping on top of your workplace scheme
You don’t need to be especially tech-savvy these days to keep track of your finances on the go. It’s likely that your workplace pension provider offers simple ways to keep track of your contributions and monitor your pension’s investment performance online or via an app.
Your workplace scheme may offer a death benefit nomination. This provides you with the choice to add beneficiaries, which can give your loved ones access to your pension pot when you pass away. The details regarding how these payments are made and taxed will depend on the particular scheme you’re enrolled in.
You can find impartial, trusted online resources to help you understand the unique aspects of pension saving, like the UK government's Money and Pensions Service. Its Moneyhelper website contains useful information and easy-to-use tools. The charity Citizens Advice is also a useful source of impartial guidance on workplace pensions. Your employer may also have a workplace scheme adviser you can talk to.
Do you know what your other pension pots are worth?
If you've moved jobs over the course of your career, you could have other workplace pension pots sitting around. As long as you’ve kept your address details up to date with each provider of your personal or workplace pension pots, you should receive a pension statement for each pot, each year.
If you believe you have a pension somewhere from a previous job, the first point of contact should be your previous pension providers. If you're not sure who they are or how to contact them, you can get in touch with your former employers to find out. Alternatively, the UK government's pension tracing service can help you locate lost pots.
To make things easier to manage, you might want to consider bringing your pots together into one. Remember, consolidating a pension may not be the best option for you. You may lose features, protections, guarantees or other benefits – so make sure you compare products before consolidating. Any new funds you move your money into will have their own set of risks that will be detailed in the fund information available to you. It’s up to you to decide if this is the right decision for you. If you’re not sure, speak to a financial adviser.
As with all types of investing, it's always good to keep in mind that the value of your pension pot may fall as well as rise and the final value of your pension pot when you come to take benefits may be less than has been paid in.
Don’t forget about the State Pension
If you’re eligible for the State Pension from the Government, the amount you’ll receive will be different from other people, as it’s based on your National Insurance contributions and your own personal circumstances. You can check your State Pension forecast on the government’s website to see how much you could receive, when you can claim, and if you could improve it.
Getting closer to the retirement you want
If you've crunched the numbers and found that your current contribution level won't get you to the retirement lifestyle that suits your goals, don't worry. Defined contribution pensions, like your workplace scheme, offer you the flexibility to voluntarily save more towards your retirement.
You could choose to increase your own contributions or take part in a salary or bonus 'sacrifice' scheme, if your employer makes that option available to you. With salary sacrifice, you agree to give up some of your future pay in exchange for an employer pension contribution. Salary sacrifice reworks your pay in a more tax-efficient manner, at no additional cost to you or your employer, and can help generate higher pension contributions or higher take-home pay as a result. Note that the value of the reduction in tax and National Insurance will depend on your individual circumstances and could change.
Make sure that whichever path you choose, you can afford to make additional contributions to your pension.
Keep your pension pots in order
By keeping your pension pots in order, you can have oversight of your balance in each scheme and identify how much you need to save to fund the retirement lifestyle you have in mind. These are steps you can take to help you feel more prepared for your retirement.
Your employer may have a workplace scheme adviser or a regulated professional who can walk you through what you can do with your pension to meet your financial goals. You can also find a financial adviser on MoneyHelper.