Here’s why remembering your ‘five-a-day’ could be handy for building your pension pot.
April’s pay packets may be looking a bit lighter for some people, as new rules have come into force which mean more cash is being funnelled into workplace pensions.
From April 6, minimum contribution rates into workplace pensions have been increased – meaning those who only pay in the minimum amounts will see this stepped up. The changes are happening under automatic enrolment – the pensions revolution introduced in 2012 to encourage a greater retirement savings culture in the UK.
Here’s a look at what the increases mean and how you could grow your pension pot for a comfortable retirement…
Minimum contribution rates into workplace pensions are gradually being stepped up, to help nudge people towards saving more for their retirement.
Contributions are made up of money from staff, their employers and the taxman, through tax relief. Previously, the minimum rate was a combined 2%, now it’s 5% and in April 2019 the rate steps up again to 8%.
Will this be enough for me to live the kind of lifestyle I want in retirement?
While everyone’s circumstances and ideas about retirement are different, if you’re just saving the absolute minimum, this may be unlikely.
Alistair McQueen, head of savings and retirement at Aviva, says that, while the minimum is a “solid foundation”, a 22-year-old saving the minimum throughout their working life could end up with the equivalent of less than half their salary to live on in retirement.
As a very general rule of thumb, someone aiming for a comfortable retirement which doesn’t mean a drop in living standards, may want to aim for the equivalent of around two-thirds of their salary in retirement, he suggests.
So how can I go about it?
A 22-year-old at the start of their working life may want to consider putting 12% of their salary into their workplace pension to achieve the goal of a comfortable retirement, he says. “That can be a scary number,” McQueen says, “but that 12% includes your money, money from the employer and tax relief.”
Another simple way to think about it could be to put £5 away per day, based on a 22-year-old on an average salary, he suggests, which could help someone of this age on their way to hitting their target retirement savings level.
For those who are older who have not saved into a pension previously, saving a salary percentage which equates to around half their age could help them towards a more comfortable retirement, McQueen says. For example, a 40-year-old may want to save 20% and a 50-year-old 25% – although again, this includes money from the employer and tax relief as well as the employee.
Workers may also want to try and make sure they have at least 10 times their salary in their pension pot for a comfortable retirement – so someone on £25,000 may want to make sure they have built up £250,000 for example.
While this may also seem like a daunting sum to save, McQueen says investment growth over time can really help boost the size of a pension pot.
He says: “The sooner you start saving, the sooner you benefit from interest and investment returns.”
What if I’m thinking of opting out of my workplace pension?
While opting out is an option, McQueen says those who opt out are “turning their back on free money”. Pensions are flexible ways to save, he says, and it’s possible to vary the amounts you put in, depending on how your personal circumstances change.
What if I want to find out more about my pension?
A good starting point is to take some time to go through your annual pension statement, McQueen says. Many pension companies also have online tools and apps nowadays which can help. You can also speak to your pension company for further guidance. Some people may also want to pay for advice about their finances from a regulated financial adviser.
Where can I go to get further information?
Employers can help. But if they don’t know the answer to a question about your finances, there are also plenty of places which offer free, impartial help.
The Money Advice Service offers free and impartial guidance and the Pensions Advisory Service also provides free, impartial information about pensions. For those aged over 50, the Pension Wise service may be able to help make the options available clearer.
WHY… YOU SHOULD CHECK BEFORE YOU CLICK WHEN BOOKING A HOLIDAY
Spring is in the air and for many people it’s time to book a much-needed holiday.
But, while you’re searching for a sun-soaked getaway, it’s worth bearing in mind that 4,700 people told UK-wide crime-fighting body Action Fraud that they had been the victim of a travel related fraud in 2017 – with fraudsters stealing a total of £6.7 million.
The average amount lost per person was over £1,500, an increase of 25% year-on-year.
The total is likely to be the tip of the iceberg, as people don’t always report frauds.
The numbers of people reporting travel fraud tends to jump in the summer months and in December – peak holiday periods when people are searching for bargains.
The City of London Police, which runs Action Fraud, is teaming up with ABTA and Get Safe Online to highlight the dangers:
What should people watch out for?
In 2017, the most common types of holiday booking fraud reported to Action Fraud included holiday accommodation, with fraudsters setting up fake websites, hacking into legitimate accounts and posting fake adverts on websites and social media.
Airline tickets were another target for scammers, with people believing they have booked a flight but end up receiving a fake ticket or paying for a ticket that never turns up. In 2017, flights to Africa and the Indian sub-continent were particularly targeted.
Sports and religious trips are also a popular target for fraudsters. Action Fraud also heard from several people reporting being the victim of fraud relating to mobile home holidays.
So how can holidaymakers stay safe?
Top tips from those highlighting the dangers include checking a website address is legitimate and has not been altered by slight changes to a domain name – such as going from .co.uk to .org.
It’s also wise to do your research and not just rely on one review – do a thorough online search to check the company’s credentials. If a company is defrauding people, there is a good chance consumers will post details of their experiences, and warnings about the company.
You can also check whether the company is a member of a recognised trade body such as ABTA. If you have any doubts, you can verify membership of ABTA online, at www.abta.com.
Also, be careful how you pay. A credit card will give you added protections, and be very wary about paying directly into someone’s bank account.
Study terms and conditions – and be very wary of any companies that don’t provide any at all.
Financial fact: The average two-year fixed mortgage rate on the market reached 2.43% in April – the highest level since September 2016, according to Moneyfacts.co.uk.
COLD WEATHER CHILLED HOUSEHOLDS’ SPENDING IN MARCH
The Beast from the East kept shoppers away from stores in March as people huddled in the warmth of their homes amid the big freeze, figures show.
A report from the British Retail Consortium (BRC) and KPMG, covering the final days of February to the end of March, said the period was volatile as the run-up to Easter helped to offset the impact of the “seemingly endless” cold weather on sales.
Meanwhile, Barclaycard said spending at garden centres plunged by 26.4% annually – the biggest fall since Barclaycard’s records on this started in September 2014.
HOLIDAYMAKERS RISKING IT BY LEAVING INSURANCE COVER UNTIL JUST BEFORE THEY TRAVEL
Research from GoCompare shows the vast majority of holidaymakers only arrange travel insurance at the last minute. Over half (58%) of holidaymakers who bought through GoCompare in 2017 did so within one week of their departure date. In general, cancellation cover would enable a holidaymaker to reclaim the costs of their holiday, up to the cover limit and minus any excess, should certain circumstances arise before taking the trip.
GoCompare’s consumer advocate, Georgie Frost says: “It’s shocking that so many people are treating travel insurance as an afterthought, with many sorting it on the actual day their holiday begins, meaning they have no protection from the valuable cancellation cover provided by most single trip policies.”
BANK’S INITIATIVE HELPS PEOPLE BUILD CREDIT HISTORY BY SAVING RATHER THAN SPENDING
TSB is partnering with start-up LOQBOX to give people options to build their credit history that don’t rely on spending and paying off debt, but instead on building their savings.
Customers select a certain amount each month – between £20 to £500 – that they want to save over the course of a year. They then buy a digital savings voucher worth 12 times the monthly savings commitment and use 12-month interest-free finance to buy it.
At the end of the 12 months, not only has the customer built up their credit history, but they get their lump sum of savings returned to them, TSB said.