What is the workplace pension?
The Workplace Pension. Sounds quite scary but it is actually quite simple. Your employer will set it up for you and it is, simply, a tax efficient savings account which you can access in your 50’s, under current legislation.
There are rules about the minimum you pay in, and the minimum your boss must also pay too! You don’t have to choose where your money is invested – as this is done for you by experts – but if you do want to invest somewhere else you will normally be able to. Ask your boss!
So how does it work? Well quite simply, money is taken from your pay and put into an account in your name. Your employer also puts some money in this account and so does the Government so you end up with more money than you started with!
You can’t have your money instantly though! You will have to wait until you are at least 55 to get the cash out of your Workplace Pension. In the meantime, your money will be invested – in whatever accounts you choose – and could increase in value over time. When you reach 55 you can, currently, take a quarter of your pension savings tax free, with the rest being taxed as per any other income. So there are lots of advantages to using a pension to save.
But why is having a Workplace Pension even important? Until recently many people retired in their 50’s or 60’s and could be expected to live another 10 or 20 years. Now, with medical advances meaning that we live longer, we could be retired from work for almost as many years as we actually worked. Let’s think of this as having lots of holidays at the end of your life… If you want to enjoy these you are going to need a lot of money saved up. The earlier you save, the more time your money has to earn interest and the larger your pile of cash will be when it’s time to kick back and have fun…