The all-important pension question

Posted by TEBI on May 25, 2021

The all-important pension question




I know it’s a real challenge for many people today to earn a decent income, find affordable housing, build up savings and accumulate financial wealth. But just because it’s a challenge doesn’t mean it’s impossible.

The single most expensive financial need we all have is building up sufficient money to avoid having to work until we die. Back in the day, this used to be called retirement and typically was something done about ten years before death.

Most people can expect to be breathing air for a lot longer than their ancestors. The chances of you receiving a telegram from the reigning monarch (lovely Liz will be long gone by then) is increasing all the time, with a baby having around a 1 in 4 chance of hitting a century.

As for the state’s token gesture towards supporting later life, known as the State Pension, if you get that before you are 70, if at all, I think you’ll be doing well.

Make sure you read the following two lines very carefully, write them down on a piece of paper and keep it with your phone, laptop or stick it on your computer monitor.

  1. I must save and invest at least 15% of my household income for later life to avoid having to work until I die.

  2. Doing point one isn’t optional.

Look at saving for later life as a form of taxation. If it were compulsory, you’d have no choice but to do it. You’d adjust your lifestyle accordingly and find a way to meet your day-to-day and other short-term expenses and needs.

When looking for a new job, many people fixate on salary and bonus and other tangible and immediate benefits like holiday entitlement, child care support, or a ping pong table in the office.

But not enough people are asking potential new employers the pension contribution:

“How much will you contribute to a pension for me?”

Some employers will pay more than the legal minimum. Sometimes they link to you also paying higher contributions. Unless you need every penny to feed yourself and keep a roof over your head, you should contribute whatever you need to get the maximum additional pension contributions from your employer. It’s free money!

But too many employers are getting away with only paying the legal minimum of 3% of salary into their employees’ pensions, and employees are only stumping up 5%.

And let’s not even mention those fools who have opted out of their employer’s pension scheme and aren’t even getting the 3%!

Guaranteed benefit pension schemes available to employees in the public sector, like the National Health Service, police, local authorities and teachers, all cost the employer well over 20% of their employees’ pay. In addition, employees of these schemes pay personal contributions of between 4-14% of salary. In return, they can expect a pension of up to 50-65% of their final or average salary.

Money Milestone 5 is to save and invest 15% of your household income for life after paid work. The World Economic Forum has endorsed this approach:

“To support a reasonable level of income in retirement, 10-15% of an average salary needs to be saved[…]. Given the current long-term, low growth environment, it is unrealistic to expect that saving ~5% of a paycheck each year of your working life will provide a comparable income in retirement.”

– We’ll Live to 100 – How Can We Afford it? – World Economic Forum (2017), p5.

So remember when you are considering a potential new job to ask the employer that important question:

“How much will you contribute to a pension for me?”

The more potential employees who ask about the level of employer pension contributions, the more employers will realise that paying a sensible contribution is necessary to attract and retain good workers.

An employer’s pension contribution of 3% is not going to cut it. You deserve more.


JASON BUTLER is a former financial planner, based in Suffolk. He is a personal finance columnist for the Financial Times, and is Head of Financial Education at Salary Finance. You can find out more about him on his website.



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