More than three million people are missing out on a free pension contribution from their employer by failing to make just a small increase to their savings – worth as much as £2bn, says Royal London.
According to the pensions company, many large employers offer a ‘matching’ deal on the pensions they offer to staff. If you elect to pay in more than the minimum level, the company will match your contributions.
Royal London cited Vodafone, Next, BAE Systems, Tesco and Royal Mail as some of the household names offering this deal to the thousands of people they employ.
Around 3.2 million people are failing to take up this offer – missing out on additional contributions of £2bn, and losing out on an extra £650 of income every year.
How does a ‘matching’ scheme work?
Under rules introduced in 2012, companies have to automatically enrol most of their staff into a pension. Employers must pay 1% of your salary into a scheme, while employees have to contribute 0.8%. You can find out more in our guide to pensions auto-enrolment.
But Royal London has identified that many schemes will match your contributions if you choose to pay in more; pay in 3%, for example, and your employer will also pay in 3%.
For someone earning £27,000, the average annual income in the UK, that means:
- Contributing the minimum under auto-enrolment would see just £30 saved into a pension each month;
- Contributing on a matching scheme of 3% would see you paying a extra £50 a month into your pension;
- But overall your contributions would more than quadruple to £135 a month would be saved in total.
Royal London estimates that someone on average earnings ‘who chose at age 40 to take full advantage of an additional 3% employer matched contribution would have an income in retirement nearly £3,500 per year higher than someone who only contributed at the minimum level.’
This could provide you with an extra £650 a year, boosting your annual income from £19,050 to £22,500.
How much do I need for a comfortable retirement?
Earlier this year, Which? revealed that retirees say they need £26,000 a year for a comfortable retirement, helping them to cover the essentials and indulge in some luxuries, such as holidays, one they’ve stopped working.
As this chart shows, a couple in their 20s would need to be saving £131 a month to hit this amount when they retire. A couple in their 40s would need to be saving £198 per month.
Find out more in our guide to how much you need to save for retirement.