If you’re employed, your employer may top up your pension as part of your benefits package – and Money Saving Expert Martin says if you opt out, you’re missing out.
A personal pension is a tax-free pot of cash you, your employer (and sometimes the Government) pays into, as a way of saving up for your retirement.
At retirement, you can draw money from your pension pot or sell the cash to an insurance company in return for regular income until death, called an annuity.
Since the 2014 Budget you’ve been able to access your pension once you turn 55, taking as much or as little as you like, whenever you like.
Speaking to Holly Willoughby and Philip Schofield on This Morning, Martin explained the importance of opting in for your employer’s pension scheme.
He said: “This is effectively a pay rise, so don’t give that away, plus there’ no tax to pay on that contribution.
“It may not be going into your pay packet, but it is cash going towards your future.
“You may not have the cash to afford the compulsory contributions, and there’s not point getting into costly debt if that’s the case.
“But in the long term, it’s the most effective way to save.”
Those in debt, especially at high rates of interest, should consider whether it’d be better to get rid of that before starting a pension.
A pension is only one form of retirement planning. Combining it with other methods is often a good plan.
Explaining on his website, Martin said: “If you opt for a pension, the simple answer of how much to put in is as much as possible, as early as possible.
“There’s a very rough rule of thumb for what to contribute for a comfortable retirement – take the age you start your pension and halve it. Put this percentage of your pre-tax salary aside each year until you retire. Make sure you include your employer’s contribution in that percentage.”
So someone starting aged 32 requires 16 per cent of their salary for the rest of their working life
Three other points to remember are:
Don’t delay. The sooner you contribute, the longer your money has to grow. The compounding effect – where the ash your investment earns can, itself, attract additional earnings – makes a massive difference.
Increase payments. It’s important to put away a constant proportion of your earnings. As your pay increases, make sure your cotibkutions increase proportionately, or you’ll fall behind.
Use the ‘pay rise trick’. Most people will be unable to contribute enough at the beginning. So start with whatever you can, but each time you get a pay rise, put a quarter of it each month into your pension. Then you’ll be basking in the glory of more money, without getting used to spending the cash destined for your pension.