The law now says your boss has to set up and pay into a pension for you... you get 1% from them this year. But it's going to grow so make sure you know what you're due!
So-called 'Auto Enrolment' means the vast majority of employed people will now have a pension at work. It's a good idea as both you and your company pay in. It's a bit like getting a hidden pay rise which is being accumulated into a pension for you.
But no pain no gain and you'll also kiss goodbye to some of your monthly paycheck as it's filtered off to Pension Land. By 2019, you'll see 5% of your wages (up to a £46,350 limit) going into this pension. So your take home pay today will fall. BUT you'll also get a contribution to the tune of 3% from your boss too. This is why choosing to opt-out of these schemes is a bad idea unless you really can't afford it today. You don't pay in? Your boss doesn't pay in.
As our rule of thumb shows, a 40-year-old on the average wage of £30,000 can expect this to all add up to a final pension amount of about £140,000 by retirement. (With 300 assumptions and caveats!)
Qualifying earnings is the chunk of your salary falling between £6,032 and £46,350. This caps your boss' contributions – imagine being ITV and having to pay 3% to Ant and Dec with no caps!
You can choose to 'opt out'. To say you don't want this. No-one can force you to pay in. But it's generally a really bad idea as you then miss your freebie employer contributions and some top-ups from the Government.
A final note. If you are one of the growing army of the self-employed, you won't have this. That makes it really important to think about using either a Lifetime ISA or a private pension to set something aside for retirement.
Little note on inflation. Just remember when you're doing your numbers that £10,000 today will buy you less in retirement that it does today. Financial advisers talk all of their clients through the impact of inflation- so don't ignore it.