If you are employed and over 22, you have probably been enrolled into a workplace pension without lifting a finger. It is one of the better things to happen to ordinary savers in years, yet many people barely glance at it. Understanding the percentages shows why it is worth keeping.
Where the 8 per cent comes from
The minimum total contribution is 8 per cent of your qualifying earnings. That is made up of three parts:
- 5 per cent from you, the employee.
- 3 per cent from your employer.
- Tax relief is included within your share, so some of what looks like your money is actually the taxman handing it back.
The bit people miss
The employer's contribution is, plainly, free money. If you opt out, you do not just stop your own saving — you wave goodbye to that 3 per cent and the tax relief too. It is a pay rise you are choosing to refuse.
Can you put in more?
Yes, and many employers will match higher contributions up to a point. If yours offers to match, say, 5 per cent, paying in less than that leaves money on the table. Always check what the match ceiling is.
The long view
Pensions feel abstract in your twenties and thirties, which is exactly why auto-enrolment works — it saves for you in the background. Decades of contributions and growth turn modest monthly sums into a meaningful pot. Before you ever consider opting out, picture the older version of you who will be living on it.