Even though a larger number of millennial workers are paying into a pension, the total amount being saved for retirement has seen a drop. Comparing this to other generations shows a stark difference. While Generation Z have almost doubled their pension wealth, millennials are still not making high enough pension contributions, and the blame is largely down to confusion.
Up to 53% of millennials have said that they still don’t really understand how pensions work, and have expressed that they would prefer to have more information available to them from employers about how their pensions work.
They’re not alone in this. Just over a quarter of over-55s have said that they would prefer more pension resources to be available, so that they have more control over their pensions.
Pensions: The Facts
The pension experts at Portafina have compiled a curated selection of information for us about the benefits of pensions, as well as how to get more from them while making your contributions. If you think that your pension contributions are only going to benefit you when you retire, then you’re among the majority of people who think this way. Of course, pensions are designed to make your retirement easier, but they have additional perks that many are unaware of.
It’s useful to look at your pension as a type of cashback. Whenever you make a contribution into your pension, the government then refunds what you have paid in income tax. This can lead to some major savings. It’s worth noting that there is an upper limit to the tax relief options available, but these can be much higher than you might assume.
Legitimate employers have an obligation to provide a workplace pension for the employees that they hire. This pension will be structured so that both the employer and the employee both pay a percentage of the wage into the pension scheme. Currently, this is:
● Employer pays 2%
● Employee pays 3%
This leads to a total payment of 5% combined, which has always been encouraging for those that receive a workplace pension. However, this is set to change in April 2019. The new totals will be:
● Employer will pay: 3%
● Employee will pay: 5%
This takes your total contributions to 8% of your earnings, and that’s an amount that can start to show visible effects on your total.
As well as the tax breaks on your income tax, the money that you pay into your pension does not get taxed either. There are also a wide variety of additional tax breaks that can help you save money and increase your personal contributions. This can lead to a snowball effect, where the more money you put into your pension, the more money your pension can make for you.
With the rising cost of living, it’s small wonder that millennials are struggling to give much thought to their long-term future. Portafina Discovery have a wide range of pension resources to check out, and they have regular updates on their social channels as well. Give them a follow on their Twitter page @Portafina_UK, or Portafina’s YouTube and LinkedIn page, and you could learn about better ways to save for your retirement with a pension that will only benefit your later years.