Is it worth joining my company pension scheme at age 60 and earning £7,670 a year? Steve Webb replies
Is is worth joining company scheme at age 60?
I’m a 60 year old woman, I work 30 hours a week and my salary is in the region of £7,670 per year.
I work term time only. Is it worth me joining the company pension scheme now at my time of life?
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Steve Webb replies: There are lots of good reasons to think about joining a workplace pension, even relatively late in your working life, though obviously each individual needs to make their own decision based on their own circumstances.
Probably the best reason to join a workplace pension is if your employer contributes to it as well.
Looking at your wage, and adjusting for the fact that you work term-time only, I’m guessing that you are very close to the threshold at which your employer is required by law to enrol you into a workplace pension.
The earnings trigger for automatic enrolment is £10,000 for 52 weeks. If you are just below the threshold, you still have a legal right to opt in.
In either case, your employer should make a contribution to your pension.
The current requirement on employers is that they only have to contribute at a rate of 1 per cent of pay, and this is only on the slice of annual earnings in excess of £5,876.
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By 2019, the employer contribution will have to be at least 3 per cent, and in many cases employers will offer significantly more than this.
Some employers will contribute on the basis of the whole of your pay, rather than just on the slice above £5,876, and this would be significantly better for someone on your wage.
If you are enrolled in the company pension and stay in, or if you opt in having not been enrolled, you will benefit from this employer contribution as long as you are working.
If your workplace is one where the employer puts in one pound for every pound that you contribute, then you are immediately doubling your money by joining the pension scheme. There are not many other investments where you could do that.
A second attraction to joining the pension is that you may get a tax break on the money that you contribute, provided that the company scheme provides tax relief using the ‘relief at source’ method. This is a topic I dealt with in an earlier column and you can ask your employer about this.
If you get tax relief this means that when you contribute eighty pence into the pension out of your take-home pay you get a twenty pence top-up from the government making one pound in total.
Why is my wife’s 25% tax-free pension lump sum deal so miserly, and mine more generous?
Combining this top-up with the money from your employer means that a contribution that costs you eighty pence can immediately turn into two pounds inside a pension.
The next attraction of being in the pension is that you can usually take a quarter of the money out tax free when the time comes to draw on the pot you have saved.
Given that you received a tax break when you put the money in to the pension and can now take some of the money out tax free, this means that saving in a pension is a much more tax-efficient way to save money than some of the other alternatives.
You do not say how long you plan to go on working, but it is also worth bearing in mind that your state pension age is now 66.
If you work all the way to pension age, six years’ worth of contributions from you and your employer, topped up by the government and carefully invested could turn into a modest but useful pot of money to help you in your retirement.
Whilst it is unlikely to be a fortune and probably won’t be big enough to turn into a regular income in retirement, it will be a small nest egg which could be useful simply to pay one-off bills or even to spend on something you enjoy!
So although I don’t know all of your circumstances and can’t give you personal financial advice, I would expect that for most people the advantages that I have listed mean that joining a workplace pension scheme makes financial sense.