Do I need my work pension?
Yes, yep, definitely. But you probably want a bit more explanation than that. So let’s get into why it’s worth it.
You give, Gov gives
Pensions are designed to help you save for retirement. The Government introduced auto-enrolment to help everyone save more. It basically means that if you’re employed your employer has to enrol you in to a pension scheme.* You’ll automatically be contributing 5% from your gross (before tax) salary every month and your employer will be contributing 3% of your gross salary too.
To sweeten the deal, the Government adds to your contribution with a percentage of “tax relief”. The amount you receive depends on your income tax bracket. If you’re a basic rate taxpayer you get a tax top-up of 25% on your pension contributions, up to an annual limit.
Your pension provider automatically claims this contribution on your behalf and adds it to your pension. If you’re a higher rate taxpayer or an additional rate taxpayer, you can claim extra tax relief through your tax return.
You might be considering opting out of your work pension. Everyone has a right to do this and rely on their state pension instead. This currently stands at £168.60** per week but this may be less by the time you retire.
Why we recommend sticking with your work pension
Retirement may feel like a lifetime away, but don’t miss out on the government contributions that can see your pension pot grow.
Compound interest: Starting to contribute to your pension early, definitely pays off and that’s because of the effect of compounding. Say you contributed £1000 to your pension over a year and its value went up by 4% you’d have £1040. If it increases by 4% again next year, the increase is on the whole £1040, not just the initial contribution. It may seem like a small amount at first but it adds up to a big pot after years of contributions.
Putting more in: The 25% the government gives you in tax relief for every £1 you save for your pension is free money. There’s a minimum amount you have to put in as part of auto-enrolment but bear in mind the more you put in the more the government will put in. A good reason to pay extra into your pension if you can. Want to work out how much extra you should be saving? Find out with the handy pension calculator in our app.
The state pension isn’t enough: The Government knows the state pension probably won’t be enough for people to live on in later life. This is why auto-enrolment started and why the amount the government asks us to put in keeps rising. The easiest way to work out if the current state pension (£168 per week) would be enough for you is to ask yourself if you could live off this amount now.
* Earning more than £10,000pa
** The full value of the New State Pension
The value of pensions and investments and the income they produce can fall as well as rise. Capital at risk.
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