Are you missing out on a £30,000 increase to your pension throughout your lifetime?
By enrolling into a simple arrangement with their employer, Britons can avoid paying taxes and put more money towards their future. This can make a significant difference to their pension account over their lifetime.
People agree to cut their wages voluntarily in order to avoid paying taxes on it. This means that their employer can contribute the entire amount – including any taxes owed – to their employee’s pension.
Salary exchange is the term for a deal like this, and many people are unaware of it despite the fact that it might increase their pension by thousands of pounds.
It’s also referred to as salary sacrifice, which is a misnomer.
Keith Humphrey, CEO of Workplace Pensions Direct, has cleared the air and stated unequivocally that there is no “sacrifice” involved in such a deal.
He stated, “There is only upside.”
“For a 30-year-old who plans to retire at the age of 68 and earns an average of £29,600 per year, the difference throughout their lifetime can be in excess of £30,500.
“The way it works is that if a £20,000-a-year employee decides to decrease their income to £19,000, saving £1,000, their employer can take that money and put it into their pension plan.
“As a result, the employer no longer has to pay National Insurance contributions on that £1,000, allowing money to be put into the pension.”
According to Mr. Humphrey, this can add £204 to employees’ pensions each year.
He points out that while this may appear to be a small fee for a lot of trouble, the cumulative benefits over a lifetime might add up to a substantial number.
Indeed, additional agreements like these are “desperately needed,” he says, because neither the company nor the employee bears any costs.
Only half of British employers use this method, according to research performed by Workplace Pensions Direct and YouGov, meaning that up to 15 million workers are missing out.
“In this case, I believe the employer has a moral obligation to assist their employee in every way possible; if they do not, I fear for future generations,” Mr Humphrey said.
“Add to that the fact that expected returns on pensions have plummeted, implying that workers must now contribute 50 percent more than a decade ago to earn the same expected pay out.”
What’s going on. “Brinkwire News in Condensed Form.”