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Will this new pension feather your NEST
It’s a shocking statistic, but an estimated eight million British workers are saving nothing for their old age. Instead they’re relying on the basic state pension, one of the least generous in the Western world.
The government’s latest initiative to close this savings gap is its National Employment Savings Trust (Nest) scheme, which is being rolled out next year. Every employer will be obliged to have a pension scheme in place – either Nest or a comparable arrangement – and all employees from age 22 will automatically join their employer’s scheme, unless they opt out.
Under Nest, employees will contribute 4 per cent of their pay, the company will pay 3 per cent and the government will pay 1 per cent via a tax rebate. However it is being phased in gradually and it won’t be until 2016 that all employees are in the system.
On the face of it, the scheme is good news. The latest figures from the Office for National Statistics show that the number of people saving in workplace pensions fell last year by 300,000 to 3.3 million, so any initiative that promotes saving is to be welcomed. However, recent studies show that to avoid dependence on state benefits in old age an individual needs a retirement income of just over £14,000. A 20-year-old earning a salary of £20,000, who contributes 8 per cent for 45 years, would generate £484 monthly income. Topped up with the basic state pension (£423 a month) it would give them a monthly income of £907, or only £10,884 a year.
Of course, there’s nothing to stop individuals contributing more to their pensions and since the majority of people who will come into Nest are currently saving nothing, simply saving something through Nest will make a significant contribution to a better retirement.
For a concise and impartial analysis of your pension situation, why not contact the Census Financial pensions team on 028 9066 8700.