The benefits of saving for your retirement
From 6 April 2019 the minimum pension contributions have increased to 8% of qualifying earnings.
That is usually a minimum contribution of 5% for the employee and 3% for the employer and it applies to all employers that have automatically enrolled their employees into a workplace pension.
|Date||Employer minimum contribution||Staff contribution||Total minimum contribution|
|New rate: 6 April 2019 onwards||3%||5%||8%|
|Previous rate: 6 April 2018 to 5 April 2019||2%||3%||5%|
Source: The Pensions Regulator
Employers need to pay at least 3% of minimum contribution but they can also opt to pay the total minimum contribution of 8% so that their staff don’t need to pay anything. Otherwise, any difference between the employer’s minimum contribution and the total minimum contribution must be paid by the employees.
When employees see that about 5% of their salary disappears at the beginning of every month, some consider leaving their workplace pension, especially when their retirement age is still far and they think their money is better spent elsewhere.
However, there are many reasons why it’s important to stay in pension until retirement age. Relying solely on the state pension is not enough, which is why employees should start saving for their pension as soon as possible, no matter how far their retirement age might seem. In fact, saving from an early age can have many benefits.
The tendency is for the general population to keep on aging because of the longer life expectancy and the decrease in the number of births. That means employees will likely need to rely on their pension for longer and there might be fewer contributors to finance the state pension, which is why it is important to save as much as possible from the beginning of the employees’ working life.
These are some of the benefits of saving for retirement:
It’s tax efficient
Saving for your pension is more beneficial than saving into a regular savings account. Your pension works like a long-term savings account. However, instead of paying the taxes that would have otherwise been applicable, your pension savings are tax free, so you are also saving a percentage that would have otherwise gone to the government.
It helps you grow your savings
Some pension schemes allow you to invest what you save into your pension pot, so that it grows throughout your career. If you start saving when you are still in your 20s you will have saved a lot by the time you reach the retirement age. Also, if you are smart about investing your pension, you can end up getting a high return on investment.
You get an extra top up from your employer
Your employer contributes with a minimum of 3%, which means you are effectively getting 3% extra on top of your salary if you have a pension scheme in place.
Saving even when the date seems to be far away is the best way to make sure you stay financially stable and able to have a more comfortable retirement, covering all your costs when you are no longer working.
BrightPay is compatible with 18 auto enrolment workplace pension providers and it supports many types of traditional pension schemes. You can find out more or book a demo here.