Hartlepool-born Harrison Smith is a financial adviser based in his hometown’s Greenbank business centre and is associated with Emerald Associates. Harrison offers an insight into money matters in an exclusive monthly column for North East Connected.
It’s that time of the year where many people try to enjoy a mid-winter break to recharge their batteries. That’s what I thought too, but my trip to the Algarve this month turned into anything but that.
That was because food poisoning had me in bed for five days, with a day in hospital to top it off nicely. There was 12 of us who all went on a trip to Vilamoura, to play a few rounds of golf in 20-degree temperatures … it would have been perfect otherwise!
The conversations between us all on the golf course take many directions, sometimes personal, sometimes work-related. This time, one conversation struck a chord, highlighting just how little many of the lads understood the benefits of having a workplace pension.
The impression I got from most of them was that a pension is seen as more of a hindrance to their finances than help. That speaks volumes for society as I feel we all want everything, and we want it now.
This conversation highlighted a common misconception around pensions, giving me an opportunity to briefly explain the benefits of many modern workplace pensions.
Since April 2015, employers have automatically enrolled workers aged 22 or older, earning over £10,000 a year, into a workplace pension.
This means a minimum of eight percent of an employee’s qualifying earnings will be contributed to a pension scheme if they meet the above qualifying criteria. This eight per cent is made up of a five per cent contribution from the employee and a three percent contribution from their employer as a government minimum.
To put it simply, you put money into a pot. The employer also puts money in, and this is all done with the additional benefit of tax relief from HMRC. To add even further benefit, these contributions in a pension are very often invested and as a result, have the opportunity to grow further than merely the contributions added. Put simply, as a result of paying into a workplace pension, you will benefit from that extra three per cent from your employer that you wouldn’t get by choosing not to opt in to your workplace pension.
Having touched upon it above, The next benefit of being a member of your workplace pension scheme is the tax relief on pension contributions which means the contributions are taken before tax for most workplace pension schemes therefore going in net of income tax.
Given current pension rules, when it comes to accessing your pension, 25 per cent of your total amount is tax-free – and that is without thinking about any potential investment growth that your contributions may have made over time.
It’s amazing what a week away on a golfing holiday with friends of a similar age to me can do. If those 11 lads don’t understand pension benefits, then there must be so many more out there who don’t.
Society is all about the here and now, but good things come to those who wait.
*For further information or to book an appointment with Harrison check out his Adviser hub https://linktr.ee/harrisonsmithea [linktr.ee][linktr.ee [linktr.ee]] [linktr.ee [linktr.ee] [linktr.ee [linktr.ee]]