The minimum amounts that can be put into workplace pensions will be stepped up from this week, as UK savers are encouraged to put aside more for their retirement.
Under automatic enrolment rules, from next weekend, the minimum that can be paid in by employers and their staff will increase from 5% of qualifying earnings to 8%. Within the new 8% rate, at least 3% must be paid by the employer, with the remaining 5% made up by staff.
Automatic enrolment started in autumn 2012, amid concerns people were living longer but not saving enough for their later years. “Automatic enrolment is approaching its seventh birthday. In its short life, it has already brought a quiet revolution to pensions in the UK,” says Alistair McQueen, head of savings and retirement at Aviva.
Pensions are not always easy to understand, though, and there’s still a lot of confusion. Do you feel unsure of the facts? Here, Alistair busts six pensions myths…
No one is saving into a pension
Automatic enrolment has introduced more than 10 million new savers to workplace pensions since 2012. There are now 22 million people participating in workplace pensions in the UK.
Pensions are for old people
Contrary to popular perception, it is under-30s who are leading the way. All ages have seen an increase in workplace pension participation since 2012, but under-30s have seen the biggest increase – more than doubling from 35% saving to over 79% by 2018.
The Government will pay for my retirement
It’s true that we can expect some money in retirement from the state, but this is currently up to a maximum of about £8,500 every year. Today, the majority of the typical retirees’ income is from sources outwith the state, such as private pensions and other savings.
I will receive my state pension from age 60 if I’m a woman, or 65 if I’m a man
These commonly referred to ages were set decades ago. Since then, life expectancy has greatly increased and the age we are eligible for the state pension has been increasing, with women qualifying for their state pension at the same age as men.
The state pension age is to keep rising. The yourpension.gov.uk website can help you check your state pension age.
I can’t retire until I reach my state pension age
We are free to retire whenever we want. However, we can only really think about retiring when we have saved enough money to meet our needs when we’re not working. New rules allow people to access private pensions from age 55 – but the state pension age is set by government. As individuals, we have a responsibility to ensure we can fund our lifestyle when we retire.
There are many free online resources to help, such as Aviva’s My retirement planner (aviva.co.uk/retirement/tools/my-retirement-planner).
I’m the only person confused by pensions
Research suggests only a minority of us feel we understand pensions.
So, if you’re a bit uncertain, you’re not alone.
Aviva suggests three general rules of thumb that could help:
l Save at least 12.5% of earnings towards your retirement. This can include money from your employer and the taxman.
l If possible, start saving at least 40 years before your target retirement age.
l Try to have built up at least 10 times your salary in your pension by the time you retire.