Brits have been offered some fresh advice on pension contributions, with an expert dispelling one common “myth” about the system. Consumer expert and journalist Martyn James addressed concerns that some people think they can’t change their workplace pension contributions. He said this was a myth as people can pay more than the 4% minimum either by increasing the percentage or by paying a lump sum.
He wrote for the Mirror: “This is definitely a myth! You can pay more than the minimum amount of 4% of your salary by increasing the percentage you pay monthly or paying a lump sum into your pension. You might think your outgoings are too tight for lump sum payments, but if you get a bonus, why not consider adding that to the pension?”
Martyn also advised employees to find out whether their employer matches the increased pension contributions, as some do.
He said: “It’s also worth asking if your employer matches any extra money you pay into your pension. Some will do this, pound for pound, up to a certain limit.
“If your employer does this up to, say, 8% of your salary, and you increased the amount going into your pension from 4% to 6% of your salary, then your employer would also pay in 6%. Extra money going straight towards your retirement – happy days!”
In most automatic enrolment schemes, you’ll make contributions based on your total earnings between £6,240 and £50,270 a year before tax.
You can also get tax relief on private pension contributions worth up to 100% of your annual earnings.
This either happens automatically, or you’ll have to claim it yourself, depending on the type of pension scheme you’re in and the rate of Income Tax you pay.
You will automatically get relief if your employer takes workplace pension contributions out of your pay before deducting Income Tax, or your pension provider claims tax relief from the Government at the basic 20% rate and adds it to your pension pot.
It’s up to you to make sure you’re not getting tax relief on pension contributions worth more than 100% of your annual earnings, as HMRC can ask you to pay back anything over this limit.
