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Should Britons increase their workplace pension contributions?

Pension contributions, whilst vital to our financial wellbeing during retirement years, are often viewed with some contention.

Indeed, the fact that people are forbidden from accessing their own money until they reach the age of 55 – lest they incur a hefty tax bill of 55% – can be off-putting. As such, many people refrain from saving anything other than the bare minimum, so they can access their money whenever they want it.

This is understandable. Given the financial pressures placed on many individuals throughout the Covid-19 pandemic, some will have likely shifted their focus to immediate financial commitments, such as household bills or mortgage repayments. And as there are no immediate financial repercussions for paying minimal pension contributions, the thought of increasing pension will have fallen by the wayside.

However, saving more now could strengthen people’s financial situation later down the line…

Paying it forward

There are multiple benefits to increasing pension contributions.
At present, employers must pay a minimum of 3% into an employee’s pension pot, whilst the employee in question must pay a minimum of 5%. Whilst these contributions will gradually accumulate over time, this is still a fairly modest saving.

And with inflation rising rapidly, savers would be wise to consider increasing their contributions to ensure their pensions continue to hold their value over time. Luckily, there are mechanisms in place to reward employees who do so.

Some companies offer salary sacrifice pension schemes to employees, wherein employees agree to reduce their gross income, while their employer contributes that same amount into their pension pot. Doing so may seem like an expensive investment, but pension contributions are exempt from national insurance tax, so savers will ultimately be saving on their tax bill, whilst efficiently saving for their futures.

Even if one’s company does not offer a salary sacrifice pension scheme, it is still possible to increase their own personal contributions – even without the assistance of employers, savers will continue to benefit from the Government’s generous pension tax relief policy. Pension tax relief is paid in accordance with a saver’s tax bracket and can be a welcome addition to any pension pot, providing further motivation to continue pension contributions.

By contributing more into one’s pension pot now, the various benefits savers will enjoy, from employer contributions to pension tax relief, will enable them to reap the financial rewards later down the line.

Seeking advice on contributions

If people are ever in doubt as to whether to update their pension contributions, savers would be wise to seek independent financial advice.

For example, My Pension Expert’s team of advisers will review a client’s financial situation and recommend whether increasing pension contributions is necessary to help them achieve their retirement goals. They will also assess how much can be contributed without negatively impacting their present financial situation.

At the end of the day, it pays to plan ahead and contribute as much as possible into one’s pension pot, as early as possible. And, of course, savers should seek independent financial advice when in doubt. In doing so, more and more Britons will achieve the financially secure retirement they deserve.