Are YOU aware of free pension boosts from tax relief and matched contributions

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Are YOU aware of free pension boosts from tax relief and matched contributions

Nearly half of workers investing for retirement are unaware of the significant amounts of free cash top-ups provided by the Government, new research r

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Nearly half of workers investing for retirement are unaware of the significant amounts of free cash top-ups provided by the Government, new research reveals.

Tax relief means everyone can pay into a pension from untaxed income, but this savings incentive is not widely understood.

Every £100 you put in your pension is bumped up to £125 if you are a basic rate taxpayer, because the Government forgoes its tax and it gets paid into your pot instead. 

Higher and additional rate taxpayers get even bigger boosts because they pay more tax, up to a pension annual allowance limit.

Savings plan: A quarter of workplace pension scheme members don't realise they can change their contribution levels

Savings plan: A quarter of workplace pension scheme members don’t realise they can change their contribution levels

Some 46 per cent of workers who invest via modern ‘defined contribution’ pensions do not realise they receive this tax relief top-up to their contributions, according to a survey by TPT Retirement Solutions.

Meanwhile, though only 9 per cent are unaware their employer is contributing cash to their pensions, many who could be in line for even larger sums are missing out on extra-top-ups from their workplace.

Who pays what: Auto enrolment breakdown of minimum pension contributions for basic rate taxpayers

Who pays what: Auto enrolment breakdown of minimum pension contributions for basic rate taxpayers

Under auto enrolment, employers have to put a minimum of 3 per cent of your earnings between £6,240 and £50,270 into your pension. 

But many are willing to make 4 per cent, 5 per cent or 6 per cent in matching contributions if you opt to save a higher proportion of your income into a pension.

Workplace pension provider TPT found that 62 per cent of those surveyed who were eligible for higher employer contributions were only getting the minimum 3 per cent.

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Some will not be able to afford the increased personal contributions required to take advantage, but many will simply be unaware of this perk.

TPT’s survey shows that 24 per cent of savers into defined contribution pensions are unaware they can change the amounts they pay in every month.

This type of pension takes contributions from both employer and employee and invests them to provide a pot of money for retirement.

Not-for-profit workplace pension provider TPT polled a sample of 1,500 members currently contributing to one of its schemes, which are run for more than 2,600 employers, often in the housing, education, and charity sectors.

It runs live pension planning and financial wellbeing webinars, and has found two thirds of those who attended later took action such as increasing contributions, merging pension pots, and working out what retirement income their fund might get them.

Philip Smith, a director at TPT Retirement Solutions, says: ‘Defined contribution pensions put responsibility for a member’s financial future firmly in their own hands.

‘Helping people understand how workplace pensions work is therefore essential. If we want savers to take an active role in their retirement planning, it’s imperative that employers and all trustees provide them with the right information, tools, and support to enable them to make informed decisions.’

How to sort out your pension if you fear it’s falling short

1) If you are worried about whether you will have saved enough, investigate your existing pensions. Broadly speaking, you need to ask schemes the following questions.

– The current fund value.

– The current transfer value – because there might be a penalty to move.

– Whether the pension is in a final salary or defined contribution scheme. Defined contribution pensions take contributions from both employer and employee and invest them to provide a pot of money at retirement. 

Unless you work in the public sector, they have now mostly replaced more generous gold-plated defined benefit – career average or final salary – pensions, which provide a guaranteed income after retirement until you die. 

Defined contribution pensions are stingier and savers bear the investment risk, rather than employers. 

– If there are any guarantees – for instance, a guaranteed annuity rate – and if you would lose them if you moved the fund.

– The pension projection at retirement age. You can use a pension calculator to see if you will have enough – these are widely available online.

2) You should add the forecast figures to what you anticipate getting in state pension, which is currently £203.85 a week or around £10,600 a year if you qualify for the full new rate. Get a state pension forecast here.

3) If you are tempted to merge your old pensions, read our guide first to ensure you won’t be penalised.

4) If you have lost track of old pots, the Government’s free pension tracing service is here. 

Take care if you do an online search for the Pension Tracing Service as many companies using similar names will pop up in the results.

These will also offer to look for your pension, but try to charge or flog you other services, and could be fraudulent. 

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