2.5million workers missing out on employer pensions due to loophole – how to boost your retirement savings

MILLIONS of employees are missing out on the perks of workplace pension saving due to an auto-enrolment loophole.

Bosses have had to automatically enrol staff into pension schemes since October 2012 to get workers saving for their golden years.

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When saving into a workplace pension, employers must contribute a minimum of 3% a month into an employee’s pension based on their earnings.

This is on top of the 5% an employee contributes to a pension scheme from their wages before tax.

But around 2.5million workers are missing out on employer top-ups because they don’t earn enough to qualify for a workplace pension, research by NOW: Pensions found.

Staff must earn a minimum of £10,000 a year from the same employer to be automatically enrolled onto the scheme.

Anyone earning less than this has to ask to be put onto a scheme, but only those who earn more than £6,240 will benefit from the top ups.

NOW: Pensions provider warns this loophole particularly affects “under-pensioned” groups such as single mothers, divorced women, ethnic minorities and people with disabilities, carers and the self-employed.

People who earn more than £10,000 a year but across multiple jobs are also excluded from auto enrolment.

The research found these groups are then reaching retirement age with approximately 15% of the average UK pension wealth of £80,690.

They are not eligible for auto enrolment as they may have a number of jobs or “non traditional” work patterns, making it harder to earn the minimum £10,000 in one role to get put into a pension scheme.

This means a self-employed person or a carer could have several jobs at once but not earn enough in any to get a boost from employer contributions.

Many may have fewer opportunities for career development so will earn less, meaning lower contributions overall both from their employer and their own pay packet.

Joanne Segars, chair of trustees at NOW: Pensions, said: “Some groups in the UK face huge savings gaps and those individuals who most need to save for later life are often the people who are effectively locked out of the current auto enrolment system.  

“We need to improve retirement incomes across the board – and that starts with creating a level playing field so that everyone has the same opportunity to save for later life.  

If you fall into this category, here is how you could boost your retirement savings.

Opt-in to your company pension scheme

Your employer only has to enrol you into a workplace pension scheme if you earn £10,000 or more.

You can still ask to be enrolled if your earnings are below £10,000.

Your employer will have to make contributions if your earnings are above £6,240 but they are not required to put their own money in if you earn below that level.

Increase your contributions

Employers must contribute a minimum of 3% into a pension scheme and employers have to put in 5% from their salary.

Those are just minimums though and while it may be hard to persuade your boss to increase their contributions, you can increase yours if you can afford it.

Research by financial adviser Wealth at Work claims putting an extra 1% towards your pension now could boost your retirement pot by 25%.

You will be putting more of your money to work in the stockmarkets which should boost your long-term returns.

Setup your own pension

The workplace isn’t the only way to start a pension.

You could speak with a financial adviser about setting up a personal pension. Find an adviser using the Money Advice Service’s search tool.

An adviser may charge you for setting up a pension and there will also be annual management fees that will reduce some of your returns.

Alternatively, if you are confident enough to manage your own money you could start a self invested personal pension with an investment platform such as Hargreaves Lansdown, AJ Bell, or robo-wealth manager Nutmeg.

There are extra risks when managing your own pension as choosing the wrong fund or failing to diversify could mean you end up losing money and are left with less than you invested.

Boost your state pension

The flat rate state pension for anyone retiring since April 2016 is currently £175.20 per week.

To qualify for the new state pension you need at least 10 years’ worth of national insurance contributions, and to get the maximum you need at least 35 qualifying national insurance years.

This can be harder if you have had lots of gaps in your working career.

But you can increase your state pension by either delaying when you take it or buying top-ups.

For someone reaching state pension age since April 2016, every nine weeks you defer boosts your weekly state pension by 1%, according to the MoneySavingExpert website.

If you hold off taking your state pension for 12 months, this works out as a 5.8% boost.

You can also check your national insurance record online to see if you have any gaps.

Those with gaps before April 2016 can pay voluntary class 3 national insurance contributions to fill the holes.

You can buy up to 10 years of contributions to fill any gaps since April 2016.

The rules are complex so it could be worth seeking financial advice or  contacting the Future Pension Centre to find out if you’ll benefit.

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It comes as state pension payment dates may change over the festive season.

Retirees will get up to £230 extra a year in their state pension from April next year, the government has confirmed.

We’ve rounded up everything you need to know about when you can retire in the UK and how you can claim a state pension.

This post first appeared on thesun.co.uk