Since 2018 it has been a legal obligation for employees to be enrolled in a workplace pension scheme with a minimum of 8% of qualifying earnings being paid each year. Employers have been able to choose which pension scheme it uses, so it can be a pre-existing company scheme or a new scheme which the employer decides to use for this purpose.However, employers have also had the option of using the new NationalEmployment Savings Trust (NEST) scheme. This was introduced so that all employers have a pension scheme to offer their employees.
Each qualifying scheme must meet minimum standards regarding the benefits it provides or the number of contributions paid in. For employees auto-enrolled into a defined contribution or NEST scheme, the minimum level of the contribution must be 8% of qualifying earnings (between £5,035 and £33,540). Of this, employers must pay at least 3%. If this minimum of 3% is paid, you as the employee will have to contribute 4%, while a further 1% is paid as tax relief by the government.
The maximum amount you can pay into a pension – and on which you can receive tax relief – is 100% of your earnings or £3,600, whichever is greater.This is capped at an annual allowance set by HM Revenue & Customs (HMRC).
For the tax year 2020/21, this annual allowance is £40,000, inclusive of your own contribution and any other amounts (including those from your employer)that are paid into the scheme. That said, any unused annual allowances from the three preceding tax years can sometimes be carried forward to the current year.However, generally, if you pay in more than the annual allowance, there will be no tax relief on the excess. The earlier you start contributing to a pension, the better off you will be in retirement. That’s because you’ll benefit from compound interest. This is where you earn interest on your interest.
For example, when you start contributing to your pension, you will earn interest on that money. The following year you will earn interest on both the amount initially invested as well as the interest from the previous year. In the third year, you’ll earn interest on the amount invested as well as interest from the previous two years – and so it goes on. So, the earlier you can start contributing, the more you will have to live off in retirement. Even if your retirement is years away and you can only make a small contribution, it’s well worth doing so.
You can also request contact details from the Pension Tracing Service by phone or by post.
The Pension Tracing Service
Telephone: 0800 1223 170
From outside the UK: +44 (0) 1782 389134
Monday to Friday, 9:00 am to 5:30 pm
The Pension Tracing Service
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The Pension Tracing Service ® is a trading style of the Millennial Wealth Ltd. We are authorised and regulated by the Financial Conduct Authority. FCA number 914746. Unit 11Flag Business Exchange Peterborough Cambridgeshire PE1 5TX. The registered company number is 11557299
This service is not affiliated with the Department of Work and Pensions or any government body. The Pension Tracing Service does not offer financial advice to our clients. However we can allocate you an Authorised and Regulated Pension Specialist.
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