Why Should I Keep My Auto-Enrolment Pension?
I’m back with another post all about pensions and saving for your future and retirement. And this time it’s all about having an auto-enrolment pension which is available to people who are employed.
I’m really passionate about saving not just for the here-and-now, but for the future and what lies ahead. We all have things we want to spend on now, but it’s so important to think forward to a time when you’ll no longer be working and earning an employment income.
What is an auto-enrolment pension?
New rules came in during October 2012 which requires all employers to automatically put employees in a workplace pension scheme as long as they’re over 22 and earning at least £10,000 a year.
The reason this came into place was the mounting fears that people weren’t going to have enough money to live on when they retire. Currently, the full pension amount is £175.20 which is barely enough to cover day-to-day living.
For most of us, it’s likely you’ll accumulate multiple small pension pots due to auto-enrolment. Investment services from AJ Bell estimate on average you’ll have 11 employers throughout your working life. So that could mean 11 small pensions if you don’t combine them. I know I currently have four smaller pension pots.
How much do you have to put in?
Rules state that a minimum of 8% of your income is paid into a pension, but this doesn’t all come from you as your employer contributes. This means a minimum of 5% from your income with employers adding in 3%. So you’re getting 3% added in from your employer as a bonus with no hidden costs.
But you can up your contributions to add more to your pension pot, and I’d advise you to do this to as much as you can afford. Most employers will match contributions up to a certain percentage as well so you’ll make extra money! More on that below. You can increase your contributions by speaking to your HR or payroll department. Or you may have a login through your workplace systems to change this.
You’ll see the deductions you pay into your pension on your payslip. And you can see how much you’ve saved (alongside your employer contributions) by logging into your online account or waiting for your annual pension statement.
Why you should continue with your auto-enrolment pension
As I mentioned above a lot of companies will offer to match your contributions up to a certain amount. For example, my employer matches up to 8%. So I pay 8% in and they also add 8% in. If I upped my contributions to 12% theirs would still stay at 8%. But this is extra money you’re getting as a benefit for working for that company. So it’s a really good idea to stay enrolled so you don’t get this extra money from private pensions.
Another reason why you should keep your auto-enrolment pension is that you’ll get used to not having the money as it’s automatic from your wages each month. It’s not something you have to manually transfer or set up. And you’ll learn yo get used to it.
Plus the earlier you start saving, and the more you put aside the more chance you’ve got for your money to grow. This means you may end up with even more money by the time you retire.
Are you contributing to an auto-enrolment pension?
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18 responses to “Why Should I Keep My Auto-Enrolment Pension?”
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I think it is very important to keep auto enrolment pensions and having the payment taken from your wages, you do not miss the contributions
This is a really interesting and important post – I’ve not been in an auto enrollment pension but Ash has and we have been wondering what to do with it so thank you.
It sounds like a great idea for anyone employed to keep one of these going. It really makes a difference to have the extra money when they do retire.
Employer contributions are great as it’s additional free money into your pension pot x
Saving for the future is so smart! It’s necessary, too. We’ve been thankfully doing it for years. Such great advice!
This is one thing I do miss since going self-employed. Auto-enrolment pensions can often be far more generous than SIPPs.
I am not currently contributing to a an auto-enrolment pension as I work for myself. I must sort something out though.
I think it’s a great thing! Especially with employers adding in some, too. It’s like a little bonus!
Great post. Yes, an auto-enrolment pension with your employer is a great way of saving for later life. It has significant tax advantages too.
I can totally see the logic of why it became mandatory for employers to auto-enroll, however it woudl be nice to have an opt out if you can prove you already have a pension you’re regulalry paying into.
You can opt-out of it if you want, no ones forcing you too, but as your employer will put in some too it seems a shame to get rid of it as you’ll get additional money for free. x
This is beneficial to employees so I definitely suggest that they take advantage of this scheme if it’s offered by their employer. I got into a similar program in my previous company and you wouldn’t even feel the deductions. When I left the company, I couldn’t believe that I had such huge savings after just two years.
You get used to the money coming out and stop missing it after a while x
Great advice as always. When I was 20 and working full-time, I never even really considered a pension. I then realised how important they are.
Thank you for this useful information – it is so good to know your options and plan ahead.
I find the auto contribution easiest. It doesn’t even hurt because you don’t see it before you pay it.
It’s great to always plan for your future. When the future comes the nest egg is really important!
So true! x