A survey has found most people would support an automatic increase in their pension contributions. Yet, it’s not something you have to wait for the government to decide – you can take control of your retirement savings now.
The government introduced auto-enrolment in 2012 to encourage more people to save for retirement. It requires workplaces to automatically enrol the majority of employees into a workplace pension. Over the last decade, around 10 million people have started contributing.
The current minimum contribution level is 8% of pensionable earnings – this is made up of 5% from employees and 3% from employers.
Auto-enrolment has been successful in getting more people to save for their future. Yet, many aren’t putting enough away to deliver the income they want in retirement.
A recent House of Commons report warned “current statutory contributions of 8% on a band of earnings are unlikely to give all individuals the retirement to which they aspire”. It recommended the government commits to increasing minimum pension contributions.
76% of households would support an increase in minimum pension contributions
A survey from Scottish Widows found that the majority of households (76%) favour increased minimum pension contributions despite the challenges the rising cost of living presents. In fact, 24% would support an increase of 5% or more.
The findings demonstrate a desire to improve long-term financial security. It also suggests that many people are aware they may not be saving enough for retirement, but aren’t sure what they can do to bridge the gap.
If you want to boost your pension, you don’t need to wait for the government to act.
You could boost your retirement savings now
While an increase to the minimum auto-enrolment contributions could ensure more people are financially secure later in life, you can take control of your finances now.
You can increase how much you regularly add to your pension, or add lump sums as and when you can. As you could be contributing to a pension for decades, even a small regular contribution can add up to more than you expect.
One thing to keep in mind is that your pension savings typically aren’t accessible until you are 55, rising to age 57 in 2028. So, you should be certain that you won’t need to access the money before you reach retirement age.
If you do decide to increase your pension contributions, check your employer’s handbook first.
Some employers will increase their contributions if you do, so your pension would benefit from an extra boost.
Your employer may also offer a salary sacrifice scheme, which could reduce your tax liability now while your pension benefits. Whether salary sacrifice is right for you will depend on your circumstances and goals – we can answer any questions you may have.
There are other ways you benefit from saving in a pension too:
- Tax relief: When you save into a pension, the government adds some of the money you would have paid in tax to your pot. As a result, it’s a tax-efficient way to save for the long term.
- Investment returns: Your pension savings will usually be invested. While investment returns cannot be guaranteed, over the long term, markets have historically delivered returns. This can help your pension grow over your working life.
If you want to increase your pension contributions, you should be aware of the Annual Allowance – this is the amount you can tax-efficiently add to your pension each year. If you exceed it, you could face an unexpected tax charge.
In 2023/24, the maximum Annual Allowance is £60,000, up to 100% of your annual earnings, each tax year. The allowance covers all contributions made to your pension, not just yours. You will need to include employer contributions, those made by other third parties, and tax relief when calculating how much of the allowance you’ve used.
If you’ve already taken an income from your pension or you’re a high earner, your Annual Allowance may be lower. Please contact us if you’re not sure how much you can tax-efficiently add to your pension.
Contact us to take control of your retirement
If you want to take control of your pension savings so you can enjoy a more comfortable retirement, please get in touch. As financial planners, we can work with you to create a long-term plan that reflects your retirement aspirations and makes the most of your money.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.