Anyone can be a victim of a pensions scam, so it's important to recognise the warning signs. This video explains what to look out for.
Contributions
In workplace pension schemes, you contribute to your pension. This is deducted from your monthly salary, and the amount you pay reduces the amount of tax you pay.
Imperial also contributes to your pension and salary. The percentage contribution varies depending on which scheme you are in, but on average, Imperial pays 2/3rds of the total contribution each month.
Imperial also operates a salary sacrifice scheme for pension contributions called PensionSmart. Salary sacrifice means that you exchange the amount of your monthly pension contributions for a lower salary instead. The same amount is still paid to the pension scheme, but this means you pay lower National Insurance contributions.
So, for example, if you pay tax at 20% and are in the SAUL pension scheme, then a total contribution to your pension of £366 would cost you only £68. This is due to tax, National Insurance relief, and Imperial's contribution, as shown below.
| Employer contribution | 266* |
| Employee contribution | 100* *Total contribution: 366 |
| Tax relief | 20 |
| NI saving | 12 |
| Net cost | 68 |
pensions basics
There are two main types of workplace pensions. The first is called Defined Benefit. This type of pension allows you to build up a retirement income based on your salary when you leave the scheme and the length of time you pay in. The pension you receive is based on a formula using salary and length of service, which means the pension you will receive can be predicted. Your pension is then usually increased by an inflation amount each year and is guaranteed to be paid until your death.
This scheme allows you to better plan for your retirement as you know how much you'll have, but it doesn't always give much flexibility in how the pension is paid. You must take a pension income from this type of pension. You may be able to exchange some of it for cash, but there are limits to how much you can exchange, and you can only do this at retirement. The pension scheme we operate for our support staff, SAUL, is an example of a Defined Benefit pension scheme.
Another type of pension is the Defined Contribution pension. In this scheme, you have an individual savings pot containing your contributions and those from Imperial. At retirement, you draw your savings from this pot, which includes the contributions paid in and any investment returns earned by the scheme investing in stocks and shares.
In this scheme, you have more options regarding how you draw from it when you decide to retire. You can either draw the whole sum out as cash, draw some cash and leave some invested, or choose to buy a guaranteed income (also known as an annuity).
The pension scheme we operate for our academic and comparable posts, USS, is a hybrid scheme with some Defined Benefit and some Defined Contribution.
The earlier you start to save for retirement, the more you could have in retirement. As a general guide, it's suggested that whatever age you are, you save half this amount as a percentage of your pay. So, if you start pension saving at 30, saving 15% of your pay into your pension should be enough to give you a good level of retirement savings. The 15% would be made up of contributions from you and Imperial. This post from Money Saving Expert explains how this works and gives more reasons why you should save for your retirement.
Depending on your age when you enter full-time employment, your working life could be anywhere from forty to fifty years. Today, the average life expectancy for men is 85 and 88 for women. However, there is a 1 in 4 chance of living to 95. This means your retirement income may need to last you at least 20 years and possibly more.
In addition to your workplace pension, if you have at least ten qualifying years on your National Insurance record, you'll be entitled to receive a state pension. To count as a qualifying year, you need to earn at least £6,240. You must have at least 35 qualifying years to receive the maximum state pension. You will receive a proportion of the full entitlement if you have less than this.
It's really important to start planning for your retirement as early as possible. To help with this, we provide free financial planning workshops where you will have the opportunity to gain a clear picture of your financial situation.