By John Lawson
In most cases, the best solution is to save more money into your employer’s pension scheme.
You should always aim to save at least what is required to get the maximum from your employer. For example:
- If they say they will pay in 2% of your salary to your pension for every 1% you pay in, up to a maximum of 6%, then you should pay in 6% and you will get 12% from your employer.
- If they say they will match your contributions up to a maximum of 5% of salary, then pay in 5%.
Aside from getting the maximum possible from your employer, there are other good reasons to pay more into your employer’s pension scheme:
- Charges are capped at 0.75% – and, in many cases, your employer will have negotiated even lower charges with the pension provider.
- An employer’s pension scheme must have a default investment fund. As most people struggle with investment, this makes life easy.
- All workplace pension schemes are overseen by a group of experienced people called ‘trustees’ or ‘independent governors’. These people are batting on your behalf, making sure you get good value for money and that any poor performance is picked up early and addressed.
Those who are already paying in enough money to their workplace pension to get the maximum employer contribution can pay any excess into their own personal pension or self-invested personal pension (SIPP).
However, the main benefit of doing this is that you will get more investment choice than your employer’s pension scheme. Only consider this as an option if you are a confident investor or if you already have your own individual pension – for example, you may have started an individual pension to consolidate all of your previous pensions in one place.
Individual pensions also make more sense as you get older, as a good solution for consolidating all the pensions you have collected over your working life.