How to make sure you can pay in to your workplace pension
If your employer is about to start a compulsory workplace pension scheme, and you want to contribute but are worried you can't afford to, here are some tips that might help.
It's been just over five months since workplace pensions were launched in the UK's biggest companies.
But new research has revealed that one in three people are planning to opt out of their workplace pension scheme. And nearly half of people who have some form of workplace pension scheme on offer say they can't afford to contribute to it.
If your employer is going to be introducing workplace pensions soon, and you're worried you can't afford to pay your contributions, read on.
Live for now or later?
However, if you don't have significant debts, the argument goes that you're turning down 'free money' by opting out. That's because an employer pays 1% of what's known as the 'qualifying earnings' amount (rising to 3% by 2018) and the Government pays 0.2% (rising to 1% by 2018) in tax relief (essentially returning the Income Tax from your pay back to you) into a workplace pension.
There's also the small fact that compound interest (the effect of interest on interest) will increase any growing pension pot by a decent amount over the long term.
Based on this, Dave's minimum contributions will be:
- £13.96 a month/£167.49 a year from now until September 2017
- £41.87 a month/£502.46 a year from October 2017 until September 2018
- £69.79 a month/£837.44 a year from October 2018 onwards
As you can see, that's quite a significant jump from the initial monthly contribution now to the one from October 2017. Of course, you would hope his salary will increase in that time.
Even if it does, that time can give him the opportunity to make some lifestyle changes that will enable him to afford the higher contributions.
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Here are some ideas on how to free up some extra money.
- Shop around and see if you could save on your energy, broadband, home and mobile phone, motor fuel and food bills.
- Shop around and see if you can save on your insurance costs.
- Try to make one or two fewer visits a month to the shops, pub, restaurants, cinema and anywhere else where you might spend more money than you intend to.
- Think about ditching a foreign holiday. Instead go and stay with family and/or friends in this country. Or stay at home and visit free and cheap places nearby
- Don't upgrade to a new smartphone/tablet/laptop so often.
- Use cashback credit cards (making sure you pay off the balance in full every month) and cashback websites to earn some money on your everyday spending and use voucher websites to pay less.
- And use Lovemoney's free, secure MoneyTrack tool to keep an eye on your spending and saving.