Alongside all the resolutions to eat well, save more, and get fitter, the start of the year normally sees a surge in people searching for jobs.
Unfortunately, in these uncertain times, some people may also find themselves out of work or looking for something with more job security.
Whatever your reasons, it’s important to consider all of the benefits. And while it’s tempting to concentrate on the salary, it pays to look carefully at the whole package, particularly the pension. Think of it as a salary for your future.
Are you giving the pension the attention it deserves?
A good pension can add serious value to a job offer and it’s great that nearly 7 out of 10 people* say it’s an important consideration when looking for a new job. These days most employers have to set up a workplace pension scheme and contribute to your pension savings for your future.
Currently your employer has to contribute at least 3% of your salary and the remaining amount needs to be paid either by you, your employer, or a mix of both up to the minimum 8%. So for example, if your employer pays 3%, you would pay a minimum of 5%. But look carefully at what’s on offer from your new employer as it could be considerably more than this, and some employers offer matching schemes; the more you pay, the more they pay.
It’s worth remembering though that the 8% minimum contribution is exactly that – a minimum. It may not provide you with enough to give you the lifestyle you want in retirement.
That’s why it’s so important to fully understand how much you need to save into your pension plan to be able to afford the retirement you want. Our pension calculator can help you see if you’re on track for this.
Even a small increase in what you or your employer pays into your pension could make a big difference to your pension savings in the long run.
A Willis Towers Watson survey in July 2019** found average FTSE® 250 employer contribution into defined contribution pension schemes went up to 6.1%. With a salary of £25,000, this could mean that your employer is paying a welcome £1,525 a year into your pension pot which is invested for your future.
As a pension is an investment, it’s important to remember its value can go down as well as up and it may be worth less than was paid in.
Add a bit of tax magic
The icing on the cake? You get tax relief (or tax benefits depending on how payments are made to your plan) on what you save into your pension too. For example, if you’re a basic rate taxpayer, it only costs you £80 to save £100 into your pension. If you pay higher rates of tax, saving can cost you even less.
For more on tax relief and how it works, listen to our two-minute podcast.
When you know what’s on offer and what you can afford to contribute yourself, try our pension calculator to see how much you could have in the future.
Remember that tax and legislation may change and your own individual circumstances, including where you live in the UK, will have an impact on your tax treatment.
Have you got a few pensions?
If you’re considering a job move and you’ve had a few in your career already, chances are you’ll have built up several pension pots. If that’s the case, it might make sense to bring all of these together to make life simpler. That way it’s easier to keep an eye on how your pension savings are performing and could cut down on admin and charges.
However, it’s not right for everyone and some can carry valuable guarantees that could be lost if you transfer them, so do check carefully.
If you’re thinking about combining several pensions into one pot – here’s what you need to consider. Standard Life customers can combine pensions online or through the app.
*Research by The People’s Pension for Employee and employer attitudes to pensions as a workplace benefit
** Willis Towers Watson annual FTSE® 350 DC Pension Scheme Survey - Pensions Age magazine, July 2019
The information here is based on our understanding in January 2021 and should not be taken as financial advice.