17th September 2015 at 4:08pm
One of the main benefits of saving into a pension is that if you’re employed, you can usually get a top up from your employer and tax breaks from the government – that’s extra money invested for your future for free!
It’s now law that if you earn over £10,000 per year, are aged 22 or over and are under state pension age you’ll be auto-enrolled into your company pension scheme. Meet the criteria and you’ll be enjoying some great tax breaks and top ups and hopefully making some headway towards the retirement you desire.
So how does it work?
We’ll explain here one of the ways in which you get tax breaks. The top-up from your employer will be a percentage of your salary that is added to your pension, on top of your pay you’ll actually get. Depending on the type of pension scheme you’ll also get a top-up from the government (known as tax-relief) and is a percentage of what you put in.
And how could this look in real terms?
Well there’s a good chance, again depending on how your company scheme works, you could potentially turn £26 into £121.
Let’s say you were earning the UK average £26.500. If your monthly employer’s contribution was 2.5% (£55.20), you make a payment of 1.5% (£33.13pm), this 1.5% is matched by your company (£33.13pm), that all comes to a very handsome £121.46pm.
And don’t forget that £33.13 you paid in was actually only £26.50 out of your take home pay due to tax savings. The impact will be more if you’re a higher or additional rate tax payer.
Get more info
If you’d like to find out more on company pensions and how they work then GOV.UK is a good first stop. They have some handy information on tax relief, types of scheme and the all-important who pays what.
Join the conversation
The information in this blog or any response to comments should not be regarded as financial advice. Pensions are investments and their value can go up or down and may be worth less than you paid in. Laws and tax rules may change in the future. The information here is based on our understanding in September 2015. Your personal circumstances also have an impact on tax treatment.
If you’d like to read more content like this, please visit www.standardlife.co.uk/c1/retirement.page