Are you missing out on "Unclaimed" Salary?
Would you refuse additional salary or a bonus from your employer? Absolutely not, I hear you say. And yet, many individuals are doing exactly this by choosing not to join their employer’s pension scheme.
A pension contribution from your employer is part of your pay. It doesn’t go into your bank account today – it is held in an approved plan until you reach retirement age – but it is pay nonetheless.
Why do some people not value employer pension contributions? Why is it difficult to attribute value to something just because we cannot have it today? Is this a symptom of the same cultural malaise that has spawned billions in credit card debts - the “I want it now” generation?
Consider this: in a world of low interest rates and volatile stock markets there is a place where you can save for the future and get an immediate bonus payment from your employer. Since the introduction of Auto Enrolment your employer has to make a contribution on your behalf if you join their pension scheme. Some employers will offer higher levels of contribution if you are prepared to do the same.
What is more, the government, who are desperate for us to save more, will also give you tax relief on the money you put in. Some companies will also pass on National Insurance savings to sweeten the deal even further.
Let’s look at some actual numbers. If you are prepared to save £100 per month after tax and your employer is willing to match your contribution, that could mean a total monthly investment of £314 allowing for tax and National insurance relief. Ignoring your own contribution that is equivalent to more than £2,500 per annum in extra pay. Who would turn that down?
Are there any other incentives? Yes, there are. Your deferred pay (your pension fund) is allowed to grow completely tax-free until you claim it. What is more, when you do eventually claim your deferred pay, you are allowed to take 25% of it completely tax-free. The rest is taxable under PAYE just like your salary.
So don’t miss out on extra pay. Make sure you are maximising your total remuneration package by following these simple steps:
Stay in the company pension scheme (or JOIN if you haven’t yet done so).
If you can afford it, pay in the amount necessary to benefit from maximum employer contributions.
Ask your employer to let you pay by salary sacrifice with the full benefit of saved National Insurance contributions.
There will be rare occasions when these basic guidelines do not apply. If you are unsure of your own situation, always take advice.