The amount you pay into the Plan is key – it means that the more you pay in now, the more you’ll be able to enjoy when you retire.
So it’s a good idea to know what your options are and how much you should be thinking about paying in.
The Company pays the admin charge for the Plan on your behalf, so you only pay the Investment Management charge on your account, which adds value to being a member of the Plan.
How much will you contribute?
You can find out your initial contribution rate in one of two ways:
- Your Employment Letter included an offer to join the Plan, which tells you how much you can contribute and how much your Employer will contribute.
- You can log in here to the secure part of this website to see your current contribution rate.
Your employer contribution is capped at a maximum amount that’s shown in your Employment Letter. There’s nothing to stop you contributing as much as you like though.
Auto enrolment contributions
If you’re an eligible jobholder (which is someone who is between age 22 and State Pension age and earning over £10,000 per year) and have been automatically enrolled into the Plan, your contribution rate is based on your ‘qualifying earnings’ – which includes your salary, any bonuses, sick pay, and maternity pay, between the lower and higher earnings thresholds. These thresholds change every tax year, and for 2019/20 they are £6,136 and £50,000. The contribution rates are:
|Duration||Your employer’s contribution||Your contribution||Total into the Plan|
|6 April 2019 onwards||4%||4%||8%|
The Plan contribution levels shown above are actually more beneficial to you than Government minimum contribution rates. The Government minimum rates split the contribution as 3% employer contribution and 5% from the employee. As you can see, the Plan contribution levels are a more favourable split for you as the employee.
Just because this is the rate that you’ve been automatically enrolled on doesn’t mean your contributions should stay at that rate!
In actual fact, these amounts are just to help get you started in putting money aside for when you retire. If you can afford to, it’s a good idea to increase your contributions as much as you can, to start building up your savings.
Increasing your contributions
You may think having money now is more important than paying more into your retirement savings. But think about it this way – the younger you are when you start paying in as much as you can, the more likely you’ll be able to retire when you want to (maybe even early!). Why not set yourself a challenge, for instance, every time you receive a pay rise why not increase your retirement savings contributions by half of the increase in your pay?
Once you’ve increased your contributions you can always lower them again if something comes up and you need a little extra cash in your take home pay.
How to change your contributions
You can change your contributions in two ways:
- If you’re joining the Plan for the first time, you can specify the amount you want to contribute when you’re filling out the contribution section on your Application form.
- If you are already a member of the Plan, you can download a Changing your contributions form. You can use this if you want to increase or reduce your monthly contributions, or to pay a one-off lump sum into your retirement savings you can fill in the Lump sum contribution form.
Making your contributions go further
There are two ways that you can pay contributions into your retirement savings:
- Salary Exchange scheme
- Salary deduction via PAYE
Salary Exchange scheme: This is a tax-efficient way of paying into your retirement savings, and your contributions are automatically set up this way unless you opt out.
Put simply, you exchange part of your basic salary for a retirement savings contribution before you pay any tax or National Insurance on it. The Company then pays a contribution of the same amount, directly into your retirement savings on your behalf. This means that your basic salary is reduced by the amount that you’re paying into your retirement savings.
This enables you to pay less National Insurance – saving you money. Your Employer also saves on National Insurance contributions, and shares half of this saving with you by paying this back into your retirement savings – so that you get even more.
Salary deduction: If you choose to opt out of paying by Salary Exchange (either through the Application form or the Salary Exchange – Opt out Form) then your contributions will be deducted from your salary through PAYE.
That means that your contribution is deducted from your earnings before income tax, but it doesn’t reduce the amount of your earnings that are subject to National Insurance Contributions. It also means you wouldn’t benefit from the additional boost from your employer’s National Insurance savings, either.
You’ll still get tax relief on the money you pay in to the Plan which will be provided through the PAYE system.
Time off work
Don’t forget – if you’ve agreed temporary time off work with your employer then your membership of the Plan will carry on as it normally would. If you do find yourself absent from work, your contributions to the Plan will be based on your actual earnings while you’re off work. If your earnings were to cease altogether then your contributions would usually stop too – unless your employer decides differently. In some cases, your employer may (if the Trustee agrees) continue making contributions to the Plan even while you’re not working.
If you need to go on maternity, paternity, parental or adoption leave, you’ll be notified of what will happen closer to the time.
You may be automatically enrolled if you become an eligible jobholder while on maternity leave.
Tax and retirement savings
You automatically receive tax relief on your retirement savings contributions whether you pay through the Salary Exchange scheme or through PAYE before anything goes into your retirement savings Plan.
If you pay: £100
And the Company also pays: £100
It means that a total of £200 is going into your retirement savings for your £100 contribution, but your take-home pay is only reduced by £80 (or £60 if you’re a higher-rate tax payer).
There are also annual and lifetime allowances set by the government.
The Annual Allowance specifies how much you can contribute over a tax year and still receive tax relief.
The Lifetime Allowance is the total amount of pension savings you can build up over your lifetime without incurring a tax charge.
You can find out more about these on the 'Annual and Lifetime Allowance' page.