We’ve seen a few headlines about various aspects of pensions recently and so have put together a quick round up.
State Pension ‘Triple Lock’ suspended
The State Pension normally enjoys the protection of the ‘Triple Lock’ which means that each year it rises in line with the greater of either:
- Inflation (Consumer Price Index)
- Average earnings
- 5%
This year, earnings have been rising sharply which would have meant that State Pensions would have gone up by 8%. The Government have removed the Triple Lock guarantee for one year which will mean that April 2022’s increase will be either 2.5% or inflation.
National Insurance Increased from April 2022
To help fund Health and Social Care, the Government have announced an increase to all rates of National Insurance:
| 2021/22 | 2022/23 | |
| Basic NI Rate | 12% | 13.25% |
| Higher NI Rate (income over £50,270) | 2% | 3.25% |
| Employer’s NI Rate | 13.8% | 15.05% |
What does this have to do with pensions? If your employer offers you access to Salary Sacrifice as a means of paying into a pension, you not only save Income Tax at your highest rate on what you invest this way, but also save National Insurance*. As NI is increasing then so is the NI saving that you make on your pension contributions.
You can find out more about Salary Sacrifice here: PK Guide to Salary Sacrifice.
*Employees over State Pension Age (SPA) pay no personal NI and therefore won’t make NI savings via Salary Sacrifice. However, once introduced, the proposed Health and Social Care element will be payable by those over SPA who are still working.
Why do so many people fail to save adequately for their future?
We’ve been looking at two reports that pension companies have recently produced:
Royal London reported that last year 16% of 35–54 year-olds either stopped or cut their pension contributions. Aegon reported* that people who can form a clear picture of their future self were EIGHT times more likely to plan and save than those who can’t.
At PK, we’ve got loads of tools to help people – calculators to project your overall retirement income, articles to help ‘de-mystify’ pensions and you can even book one-to-one sessions with an experienced financial adviser. However, based upon what Aegon are saying, it looks like the first step’s down to the individual.
Have you ever properly thought through what you want your future to look like:
- How much money you’ll need
- What age you want to stop work
- What you’ll be doing with your time
Most people don’t achieve early financial independence. Not because they don’t earn enough but because they don’t plan early enough.
If you want to find out more, book a session with Tim, your dedicated Adviser.
Making Pensions Greener
Most people don’t know much about where their pension’s invested but when they do start to think about it, a large number of them want their pension to invest in a more ethical and sustainable way.**
You may have heard about the ‘Make My Money Matter’ campaign, headed by Richard Curtis and featuring the ex-Governor of the Bank of England, Mark Carney. The campaign has been gaining a lot of media attention this year and is encouraging people to engage with their workplace pension provider to make them invest in a more sustainable way. The idea is that there are tens of billions of pounds invested in pensions and consumers can use their voices to make a positive change. Your workplace pension already offers different investment options***, including some that are specifically ethical and/or sustainable.
Next steps…?
Start thinking about your future. If you can visualise what you want it to look like, then you can form a plan. If, thanks to NI increases, pension contributions are more efficient, then it could be a good time to increase. Every little helps – small increases made every now and then can have a surprisingly large effect on your future.
Talk to PK, we can help you work out what you need to do to achieve your goals.
*Insight Into The Nation’s Financial Wellbeing 03/21
**Source: Make My Money Matter
***Changing your investment may mean changing your level of investment risk. Please make sure that you understand all the implications before making any changes
This document is intended for information purposes only and is not intended to provide advice.
PK Employee Benefits is a trading name of PK Financial Planning LLP which is authorised and regulated by the Financial Conduct Authority.
