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 Home Pensions Starting a Pension
How much will it cost me?Nearly all company pension schemes want a contribution from members, as a condition of membership, but the actual cost of joining may be less than you think.
Pension schemes operate in line with rules made by HM Customs and Revenue. In return contributions to pension schemes qualify for tax relief. Contributions to company pension schemes are deducted from your wages before income tax is calculated. So you receive full tax relief on contributions at the maximum rate you are liable for. (Usually at the basic rate of tax - 22%). This makes pension schemes a tax efficient way to save for your retirement. In most cases your employer also pays into the scheme. Usually employers pay the same as you and in the better schemes more than you pay. The explanatory booklet or scheme guide and shows the members' contribution rate. If you have a choice of contribution rate it's usually a good idea, if you can afford it, to pay the rate that requires the highest contribution from the employer If you want to find out how much it will cost you before you join:
The more the employer contributes to the scheme, the better your pension is likely to be. It is an important part of the 'employment package' alongside other things such as pay, sick pay, paid holidays and paid maternity leave. This is why trade unions think of pensions as ‘deferred’ pay. Many pension schemes nowadays have introduced a method of paying contributions which saves members (and the employer) having to pay National Insurance on pension contributions. This is called salary sacrifice or 'Smart Pensions'. Where salary sacrifice applies your National Insurance goes down. Example: The member's contribution rate is 4%
So the actual cost of joining the pension scheme is less than 4%. Pension schemes often include life assurance cover which pays out if you die. So when you look at the cost of the joining you should also consider the value of this important benefit against the cost of providing the benefit yourself.  Printer Friendly Page  Email to a Friend
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