Your contributions
Reviewing your savings
What are the contribution rules for the scheme?
If you get automatically enrolled, you will be required to contribute 2% of basic salary and Biogen will contribute 7%.
If you wish to amend what your paying into the pension scheme, the main scheme rules are as follows:
0% employee/ 5% employer
1% employee/ 6% employer
2% employee/ 7% employer
3% employee/ 8% employer
4% employee/ 9% employer
5+% employee/ 10% employer
How much should I contribute?
The question of how much money you will need in the future should be considered up front, so you can set an appropriate contribution level today. The more (and earlier) you save, the easier it will be to reach your future income target. Remember that tax relief means your contribution may cost less than you think. You may wish to target a retirement income of 1/2 or 2/3 of your salary level. This would help you to maintain a good standard of living at retirement, as inflation reduces the real value of income over time (hence why we invest)! If you want to research further about how much income you may need to achieve your desired lifestyle in retirement, have a look at the Retirement Living Standards website.
Boosting your savings
Contributing a little more!
A 35 year old in the UK has a life expectancy of around 90 years old. That’s 25 years in retirement if you stop working at age 65! Maximising your pension contribution is a key factor in giving you the best chance of building up a pension fund that will provide you with a financially secure retirement. Increasing your pension contribution, even by a small amount, could make a huge difference to your standard of living at retirement. With income tax and National Insurance relief on your employee contributions, it could also cost a lot less than you think! What’s more, when you contribute an extra 1% to your pension, Biogen will increase their contribution too, up to a maximum employer contribution of 10%. Balancing today’s financial needs with saving for the future can be challenging, but considering your ‘future self’ is a key driver to success in this area.
Salary Sacrifice
Did you know by paying your pension contributions via Salary Sacrifice it could cost you less then if you pay by Net Pay? Both methods provide income tax relief (i.e. you don’t pay income tax on your pension contribution), but Salary Sacrifice also benefits from full up front tax relief for Higher and Additional rate taxpayers (see below). By contributing via Salary Sacrifice, you also save National Insurance (12% for basic rate taxpayers, 2% for higher and additional rate taxpayers) on your pension contributions. If you are a basic rate taxpayer, £100 into your pension would only cost you £68 via Salary Sacrifice (£80 by Net Pay). For a higher rate taxpayer, £100 into your pension would cost you £58 via Salary Sacrifice (£60 by Net Pay). Please read section below regarding claiming Higher and Additional rate tax relief.
Relief from Income Tax
Higher and Additional rate taxpayers also receive their highest rate of tax relief (40% and 45%, respectively) up front, when contributing via Salary Sacrifice. In contrast, Net Pay contributions receive 20% (basic rate) tax relief via the provider as standard. Any additional tax relief due must be reclaimed from HMRC, via the annual Self-Assessment process. Click here for more information about Salary Sacrifice.
Pension Allowances & Limits
Annual allowances
The Annual Allowance is the maximum amount you can contribute into a pension in any given tax year, without incurring a tax charge. Both personal and employer contributions count towards the Annual Allowance. The Annual Allowance is currently set at £40,000 per annum. You are able to top up your allowance in any given tax year, with unused allowance from the previous three tax years. This is called ‘Carry Forward’. There are further restrictions placed on the Annual Allowance, which may be applicable depending on your circumstances.
Money Purchase Annual Allowance
The Money Purchase Annual Allowance was introduced in April 2015 and applies when an individual aged 55 or over accesses their pension fund flexibly (see next section for more information) and then wishes to make additional contributions into their pension.
The Money Purchase Annual Allowance is currently set at £4,000 per annum.
Higher Earners
The Tapered Annual Allowance applies to higher earners (over £200,000 income) and reduces an individual’s Annual Allowance from the standard £40,000 to a minimum of £4,000.
If you are potentially affected by any of these Allowances, you should seek regulated financial advice.
Lifetime Allowance
This is set at £1.073 million from April 2020 (£1.055 million in 2019/20) and refers to the maximum value of pension savings you can accumulate over your working lifetime without incurring a tax charge. The Lifetime Allowance is assessed when you draw (or ‘crystallise’) your pension funds, or at age 75 if earlier. If your pension benefits are valued above the Lifetime Allowance, you will be liable to the Lifetime Allowance charge on the excess, 55% on any benefit drawn as a lump sum or 25% on any benefit drawn as an income (which is also subject to income tax).