Are you making the most of your workplace pension? A rise of £4.3 billion for a total level of savings in to workplace pensions of £90.3 billion was recorded in 2017 according to the Department of Work and Pensions (DWP).
Pension auto-enrolment was the driving force behind the 84% of eligible employees that were enrolled in a workplace scheme in 2017, an increase from the 77% recorded in 2016.
Automatic enrolment in the minimum possible level of contributions has resulted in a lower average savings amount per employee, at £3,900 per saver.
In April this year however, the minimum contribution rose from 2% to 5% and is set to rise further to 8% after April 2019.
Nathan Long of Hargreaves Lansdown says that:
" The government’s auto-enrolment regime is responsible [for the current situation], as it throws first-time savers into a pension although it currently insists on only very low saving levels."
Young investors are more likely to benefit from the new rules as their investment time horizon is much longer according to Mr Long.
A large gap in public and private sector pensions has appeared due to the decline in average pension savings in the private sector. Public sector employees now have almost twice as much in their pension policies compared with those in the private sector.
Troy Clutterbuck of NOW:Pensions says that:
"On average, our members have just £412 saved. Although minimum contributions will rise to 8 per cent of qualifying earnings in April next year, this alone won’t be enough to bridge the growing gap between public sector and private sector pension savings."
The number of people who are self employed has risen by 45% since 2000, rising from 3.3 million to 4.8 million. They are however currently not able to participate in auto-enrolment and the number of the self employed that are contributing to a pension has fallen from 30% to 14% in the last 10 years.
Tom Selby of AJ Bell asserts that:
"Even in the absence of an employer contribution, the combination of tax relief, the power of tax-free compound growth and flexibility from age 55 make pensions an extremely attractive option for the self-employed."
Are you taking advantage of your workplace pension? For those who are self employed, your financial adviser can put the appropriate pension in place in order to ensure you are not left behind.
The value of investments and income from them may go down as well as up and you may not get back the original amount invested.
A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.
Workplace pensions: numbers saving soar, but average amount saved plunges