Four small mistakes when starting a new job that could cost you £200k – and how to avoid them | The Sun
29th August 2023

YOU could be missing out on £200,000 in your retirement by making these four, small pensions mistakes when starting a new job.

Saving for the future probably isn't at the forefront of anyone's when they start a new job.

But not thinking about your retirement now could mean you're losing out on extra money you could use to boost your pension.

This is important as savers have been warned that the state pension won't be enough to get by financially in retirement.

It means that you'll want to put as much cash aside as you can to make sure you're not struggling in later life.

Becky O'Connor, director of public affairs at PensionBee, said: "Pensions are an often overlooked part of the overall employment package.


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"This is often down to a lack of information from employers about the pension scheme being provided as part of the application process.

"But with pensions making such a huge difference to retirement outcomes, they should arguably take greater prominence in the information given by employers and considered by applicants."

Becky has shared the four burning questions you should ask an employer when you start a new job to maximise your pension pot.

1. What are the employer contributions?

Many employers stick with their auto-enrolment minimums when it comes to workplace pensions.

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But if you have an employer who is willing to do more then this could have a massive impact on how much you end up with in retirement.

Becky said: "Double matching’, when you increase what you put in and the employer doubles up on your contributions, up to a maximum, is a very effective way of ramping up the amount going into your pension."

Since October 2012, employers have had to automatically enrol workers into one of the schemes.

There are minimum contributions that you and your employer must pay.

A minimum of 8% must be paid into the pension, with you contributing 5% and your employer paying at least 3%.

PensionBee says that by not asking an employer for matched contributions, a graduate on a starting salary of £30,000 could be missing out on up to £200,000 in pension contributions over their working life (from ages 22-65).

This is based on their auto-enrolment contributions doubling from the 8% minimum to 16%.

2. Is the pension defined contribution or defined benefit?

Defined benefit schemes are where your employer agrees to pay you a certain income in retirement.

This can be based on either your earnings level throughout your time at that company, or what you earn when you leave.

While they usually require some type of contribution from your salary, you do not take responsibility for your pot, your employer does – and the contributions added by the employer are usually pretty high. 

Becky said: "These schemes tend to be more generous in terms of what you get out at the end as income than defined contribution pensions.

"Defined benefit schemes are more common in the public sector and large private sector organisations, although they are becoming more rare, as they can be difficult for employers to fund. "

Defined contribution pensions are now far more common in the private sector and the chances are this is what your new employer will offer.

This is where your contributions and your employer’s are invested in a pension fund and by the time you finish work, the hope is this will have grown into a decent-sized pot for you to be able to retire. 

That's why it's a good idea to clarify exactly what your employer will be contributing, so you can really maximise your pot.

3. Is the pension salary sacrifice, net pay or relief at source?

Pensions can be confusing, so it's important that you get to grips with all the lingo – and what it means for you.

Net pay pension contributions are where the full amount of your contribution is taken before tax is deducted, so that you end up with a lower tax bill on your earnings.

Relief at source contributions are where your contributions are taken from your pay after your salary is taxed – you then get 20% basic rate tax relief added by your provider to your pension contribution.

If you are a higher-rate taxpayer, you claim the extra relief you are owed via your tax return.  

Becky said: "Low earners can sometimes be at a disadvantage in net pay schemes – relief at source contributors get the tax relief added to their pension, even if they don’t pay tax.

"The Government has announced plans to correct this anomaly for low earners in net pay schemes by 2025."

Salary sacrifice is a bit like net pay, but is an agreement to give up some of your salary, which is then paid into your pension instead by your employer.

This is so the employer makes the contribution rather than the employee.

The arrangement also results in National Insurance savings.

4. Are there any other long-term savings benefits?

"It’s not all about the pension," Becky said.

"Some employers offer other long-term saving schemes, such as share incentive plans, save as you earn schemes and share option plans.

"These usually mean that if your company does well, your rewards increase."

While these are not substitutes for pensions, they often come with tax advantages and are worth considering when deciding on the overall attractiveness of your package.

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Meanwhile, a retirement expert has revealed a little-known FREE trick to boost your state pension by £3,000 a year and it takes just minutes.

Plus, almost 100,000 pensioners with less than £10,000 saved could be blocked from cashing in their plans – check if your pot is affected.

Do you have a money problem that needs sorting? Get in touch by emailing [email protected].

You can also join our new Sun Money Facebook group to share stories and tips and engage with the consumer team and other group members.

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