Save more into my pension
Find out how much your employer saves into your pension on your behalf, and how you can save more for the retirement you want.
Employer contributions
To meet automatic enrolment rules, at least 8% of your pensionable salary must go into your pension every month.
Your pensionable salary is usually your basic pay, but it might be more or less than this. Ask your employer if you are not sure.
Employer contributions
Your employer decides how much they contribute, but it will be at least 4% of your pensionable salary plus the cost of life cover.
What do I save?
Your employer decides how much you need to save into your pension.
How can I check how much my employer saves, and how much I save?
It's easy, just go to PensionsOnline and head to the My Membership Toolkit tab.
Working for the NCIs
If you work for the NCIs, this is how much they save into your pension for you.
You do not need to pay into your pension. But to support you in saving more for retirement, the NCIs will assume you will save 3% into your pension when you start employment. The NCIs will match anything you save up to 3%.
You can change this at any time through PensionsOnline.
How does tax relief work?
Your contributions are taken from your monthly salary, so you receive tax relief up-front.
If you are a 20% taxpayer, for every £100 you save, only £80 comes out of your pay, or if you are a 40% taxpayer, only £60 comes out.
If you do not pay tax, unfortunately, you do not get tax relief.
You have a limit on how much you can save or earn in a pension each tax year. This is called your Annual Allowance. If you go over this, you usually have to pay a tax charge.
This limit includes how much your employer pays, plus anything you pay. It also includes how much you earn or save with other pensions. Check your Annual Allowance before deciding how much to pay. If you exceed this during a tax year, you may have to pay tax on the excess.
You can find out more about Annual Allowance at www.gov.uk/tax-on-your-private-pension/annual-allowance
Saving your own money into your pension
Monthly contributions
You can save extra into your pension account to increase your retirement income. This is called saving Additional Voluntary Contributions, or AVCs. You can only save AVCs while you are an active member.
The easiest way is to save a monthly amount through your salary. Your employer’s payroll will take this from your salary, so you receive immediate tax relief at your top rate of tax.
You can increase, decrease, stop or start at any time. To start saving or change your AVCs, head to PensionsOnline.
Saving a lump sum
Saving a lump sum can be a great way to give your AVCs a big boost. But be careful, you only receive tax relief on your taxable earnings.
If you are thinking of saving a large amount, speak to a financial adviser first to check how much tax you can claim back.
As you will have already paid tax on your lump sum, you can claim the tax back by completing a self-assessment tax return at www.gov.uk/self-assessment-tax-returns
HMRC usually refunds you after the tax year has ended.
What difference does saving more into my pension make?
Saving extra money into your pension can give your retirement savings a healthy boost.
Saving an extra £50 a month into your pension for 10 years can make a significant difference, thanks to the power of compound interest. Here's a simplified example to illustrate the potential growth:
£50
Monthly contribution
£600
Annual contribution
£6,000
Total over 10 years
By the end of 10 years, your total contributions of £6,000 could grow to approximately £7,872, assuming bonuses are 5% each year. The interest earned over the 10 years would be around £1,872.
Don't forget, you get tax-relief back on your £6,000, so if you're a 20% tax-payer, it will only cost you £4,800.
Keep in mind that bonuses can vary, and this example is based on a simplified calculation. If you use your £7,872 extra money in your pot to buy an annuity, you could get:
Tax free cash
estimated annual taxable income for the rest of your life
Should I save more into my pension?
Saving extra money into your pension comes with great tax advantages, but there are things to think about before saving more.
Find a balance with other savings
Saving into your pension means your money is locked away until you retire. A balanced way to save might include saving into an ISA (or other types of investment), which gives you immediate access to your money if you need it. This will give you a good mix of saving for the long term, and having access to money at moments that matter.
Retirement goals
It is worth thinking about the lifestyle you want in retirement. Will your current savings get you there? If you need to save more, and you can afford to do this, topping up your pension will help.
Start early with little and often
The sooner you start, the more time your pension has to grow. Saving little and often each month can be more affordable than saving larger amounts closer to retirement.
Regular contributions help you build your pension steadily over time. Smaller, frequent amounts may be easier to fit into your budget.
Add a one off lump sum
If you have money set aside and would like to add this to your pension, check you can afford to make a big lump sum contribution without impacting your financial stability.
A balanced approach might work best. If you can make both regular small contributions and occasional larger ones, you might be able to maximise the benefits of both strategies.
How much money do I need to retire well?
Step 1 - check yourself against the Retirement Living Standards
The Pensions and Lifetime Savings Association seeks to help people by coming up with figures for the sort of budget you might need in retirement depending on whether you are targeting a ‘minimum’ ‘moderate’ or a ‘comfortable’ standard.
TAKEWAY ACTION
Get up-to-date figures from all your pensions, including the State Pension, and compare yourself against the Retirement Living Standards. Remember, these are amounts you need after tax, and assume you will not have mortgage or rent costs in retirement.
Step 2 - decide what to do next
If you're on track for the level of retirement you're hoping for, then keep on going.If you are behind where you would like or need to be, then you still have time to save more money.
If you can afford to, saving more money will boost your retirement income and bring you closer to the level you are hoping for.