Let’s start with the thought that pensions are just a
long-term savings scheme. Most people, when they retire (and some people aspire
to give up work as soon as possible!) would like to maintain the standard of
living they had while they were working. But, with people generally living a
lot longer these days, this takes a large pot of money.
State pensions help, and there is the possibility that
these will be set at a standard level in the next few years (as long as
sufficient National Insurance contributions have been paid). But the state pension age is rising, for men
and women: you will have to be aged 66 by October 2020 before you are eligible
for anything. By 2046, you will probably have to wait until age 68. And even
then, the pension you receive is unlikely to keep you in the style to which you
have become accustomed! The current level, assuming a full record of National
Insurance contributions, is a little over £107 per week.
If this is
not enough to live on, there may be some benefits available; but, given the
uncertain nature of these, putting aside money to fund your retirement must be
worth serious consideration!
Some jobs
come with pensions attached – the best schemes are ‘final salary’ pension
schemes – that is, the pension is set as a proportion of your earnings. These
‘guaranteed benefits’ are well worth having but, because they are very
expensive to fund, they are becoming very rare these days. Even with such a
scheme in place, many people find that they have not been in the same job long
enough to have a good pension at retirement.
The
government is also concerned: they would like to cut the benefits bill and it
is clear that a lot of people, if they save for retirement at all, are saving
far too little. There are many reasons for our lack of interest – perhaps there
is no money left over at the end of the month, or there may be a concern that
the savings are insecure and may disappear into a pension company’s coffers.
Good management and low charges are, of course, important; but regular checks
and reviews are the best way to go, so corrective action can be taken if things
are not going as planned.
From October 2012,
the government is making all employees (with some exceptions – in particular
those earning under £8105 p.a or aged 20 or under) join a pension scheme, to
which their employer must contribute – known as ‘auto-enrolment’. Large
companies will be first to set this up, with smaller companies following over
the next few years. Contributions are also small to start with – 2% of pay in
2012/13 (of which the company pays 1% and tax relief is another 0.2%, so
employees pay 0.8%) but this will rise to a total of 8% by 2018 (of which the
employer pays 3%).
Security is
guaranteed; but of course, since this money is earmarked for retirement, there
are rules about accessing your fund – for example, under current legislation
you can’t draw it until you are at least 55 and, even then, the majority of the
money must be paid as an income for life. But that is the reason for saving the
money - and at least you can get tax relief on the money you invest.
From an
employer’s point of view, a suitable pension scheme can be very easy to establish.
It does not have to cost too much and a good pension scheme is a great
incentive for happy and loyal staff.
Whether you’re a business concerned about how to implement a pension scheme; or an employee wondering what your best options are
- Manning and Company can help. Get in touch with us today for a free, no-obligation initial advice session.
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