Millions of workers are spurning the opportunity to significantly boost their pension pots by failing to take advantage of ‘free’ matched contributions from their employers.
WORKPLACE PENSIONS GROWTH
Rules introduced in 2012 obliged companies, broadly in order of size, to begin automatically enrolling most of their staff into a workplace pension. And data from The Pensions Regulator1 shows that 8.3 million employees now save for retirement via such a scheme. The government sets a minimum percentage that has to be contributed into a workplace pension. This minimum level is currently 2%, split between the employer’s contribution, the employee’s contribution and tax relief. It will rise to 5% next April and 8% in April 2019.
For an individual receiving standard rate tax relief, every £1 pension contribution costs them 80p. If their employer matches the £1 contribution fully, each 80p saved by the worker actually generates £2 in their pension pot. This equates to a better than ‘buy-one, get-one-free’ deal.
POTENTIAL PENSION WINDFALL
However, some workplace schemes, particularly those run by larger firms such as Vodafone, Next, BAE Systems, Tesco and Royal Mail, provide a more generous option by ‘matching’ additional employee contributions beyond the minimum prescribed level.
Many workers, though, appear unaware they can contribute more than the minimum percentage or they simply choose not to do so. Either way, this failure to take advantage of additional matched employer contributions means a significant number of employees are missing out on a potential pension windfall.
Mutual insurer Royal London2 conducted research to estimate the impact of these missing matched contributions. Based on a series of assumptions, their analysis suggests around 3.2 million employees in large companies are missing out on additional employer matching contributions worth £2 billion annually. This means that, on average, each employee is foregoing a potential pension top-up of around £650per year.
If you are a workplace pension scheme member you should find out if your employer offers additional matching contributions and, if so, seriously consider raising your contributions. Act now to ensure you’re not one of the millions missing out on ‘free’ pension cash.