One in four people approaching retirement age are losing out on the chance to double their pensions savings
Over the past year people over 55 opted out of auto-enrolment at a rate of 22% compared to 8% for people under 55, according to research from NOW: Pensions.
Adrian Boulding, policy director at Now: Pensions believes this is largely due to a lack of communication with those approaching retirement age about the benefits of auto-enrolment, stating: “While they may think that it makes sense not to have another pension scheme – perhaps they think they’ve saved enough, or perhaps they feel they can’t afford it - people who do this are effectively throwing money away by missing out on their employer’s contribution to their pension, and the government’s contribution in the form of tax relief”.The study gave two examples of how people are losing out:
- Rav is aged 57 and earns the average UK wage of £27,000. He currently pays the auto-enrolment minimum of 1% of his salary above £5,876 into his pension scheme as does his employer, a total of 2% or £422 over a year. But if he had saved in a bank or building society instead of a pension, he would have missed out on both tax relief and the employer contribution, meaning that only £169 would be in his savings account. And because he is over 55, he can exercise his pension freedom and, assuming he is a basic rate taxpayer and eligible for a quarter of his pension tax-free, he could withdraw £359 cash, after tax, from his pension.
- Jane is 60 and earns a salary of £57,000 a year. Her employer is re-enrolling her into a scheme where employee and employer both pay 1% of her full salary. After a year the pension contributions will have amounted to £1,140. As she is over 60 she can take this out using the pension freedoms, and even after paying higher rate income tax she would have £798 cash. But if she had opted out of the pension and put the money she saved, after tax, into a Bank or Building Society account she would have only £342.
Boulding adds: “While some people who are near the lifetime limit do need to opt out, if you are not in that situation then it just doesn’t make sense to opt out – especially at older ages! These examples show that you could more than double your money by putting it into a pension.”