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How to make opting-in to your employer’s pension fail-safe

September 3, 2021
The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article.

Whenever you start a new job, staying opted-in to your employer’s pension scheme is an absolute must.

  • It means you are putting money away for your later life
  • Your employer contributes, which is effectively free money
  • The government adds tax relief on your contributions
  • You are automatically enrolled and then everything is taken care of for you

Starting early

Here at Pension Access, we believe that the earlier you start creating a fund for your retirement years the better off you will be. It means you will have more time for your investments to grow to finance those dreams in later life.

The problem is – whatever age you are – retirement is likely to seem a distant point on the horizon. Also, you don’t know what type of lifestyle you will be funding nor the cost of the environment around you. Consequently, many people find motivating themselves to put money away for their future difficult and it tends to go on the backburner. That’s why remaining opted-in to your workplace pension is such a no brainer. Everything is taken care of for you. And the money is invested before you receive your pay packet, which should make financial planning much easier.

A set contribution rate and a bonus from your employer

When it comes to your workplace pension scheme, the amount you will be contributing – a standard percentage – is taken out at source.

Your employer will have discussed how much you will contribute: this is usually 5% of your salary. And the great news is, along with tax relief and employer contributions, a minimum of an extra 3% is added, too. In other words, your employer is also putting money towards your future retirement pot.

And don’t think you have signed your life away. You can alter your contribution at any time (possibly through contacting human resources or the pension provider themselves) and also opt out again at any time. You remain in control.

Giving your workplace pension a boost

There are clearly benefits here which should not be missed but remember you did not really decide how much you would contribute in terms of your overall income. In almost all cases, you can choose to contribute more to your workplace pension. And it doesn’t always have to be a set-in-stone commitment. You can add more money as and when you can afford to.

When should I opt-out?

The short answer to that is never – considering the benefits you will receive. But this is the real world and there will be some who cannot afford to have some of their hard-earned cash taken away for future times. It may be that you have too many financial needs in the present to allow you to remain opted in. But think seriously about this – you will be turning down something extremely valuable.

Two women in the workplace discussing opting out of their workplace pension

Keeping your future in mind

Although opting-in is great for getting the first pennies saved, it also, to some degree, takes the long-term savings process out of your hands. You are still in control as we have said, but your pension savings pot can very easily get forgotten because it is all done for you. It is all too easy to fall into the trap of thinking your pension – and your future – is now looked after.

What happens if you leave your current job? The money you have saved through your workplace scheme will remain invested. And in some cases you can continue to contribute to this scheme. But you will no longer receive contributions from your old employer, unless they are feeling very generous. So, you then have a decision to make. Do you stay invested in this scheme or look for a better home for your money?

Like most products and services, not all pensions are the same. Some have a history of great performance and low charges, others don’t. When your employer is contributing to your workplace scheme it hardly ever makes sense to opt out and transfer your money elsewhere, regardless of performance and charges. Yet, when you leave a job, it is worth asking a regulated financial adviser, such as Pension Access, to check your old workplace scheme for you. There could well be a much better home out there for your savings. And a good financial adviser will take care of everything for you.

Changes to governmental regulations

Changes in government regulations may have an effect on what benefits you can receive from your pension. For instance, in 2015, the government introduced the Pension Freedoms. This is a policy which allows you to withdraw your pension savings from the age of 55. However, it is not available from all pensions. Again, you need to be aware of all the benefits your pension offers throughout your working life. Keep an eye on it- keep it front of mind and make changes where necessary.

However, it is not available from all pensions and releasing pension money early is not right for everyone as it will leave you worse off in retirement.

Our front of mind checklist

Remaining opted-in to your employer’s pension scheme is too good to miss in our opinion, but it is important to follow certain rules to make sure it works for you. This is our short checklist:

  • Start saving for your retirement as early as possible.
  • Keep your retirement fund front of mind to monitor progress of your investments and changes in benefits.
  • Remember the funds you need will depend on your overall needs plus your aspirations – so get dreaming…
  • Seek the guidance of a regulated financial adviser to review your pension’s performance. An expert can walk you through your options while understanding what is available in the complex world of the financial market.
  • During a typical modern career, individuals will often work for more than one employer. So, keep track of previous pension schemes so the money saved is not lost.
  • Understanding how savings schemes work will help you determine how you save for the future. For instance, if you know you can withdraw your pension savings from the age of 55, you can organise savings and contributions better. But keep in mind that withdrawing your pension early will leave you worse off in retirement.

Article updated: 13/12/2023

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