Private Sector Pensions – Beware!

19th December 2011

Private Sector pensions are typically made up of contributions from both the employer and the employee, the former being a set percentage of the salary.  However, some private sector employers are contributing only 5 per cent of their staff’s salaries to their pension schemes – which will result in many employees seeing their income drop by more than 65 per cent in retirement, unless they make additional investments.

Average employer contribution rates have reduced by 0.2 percentage points in the last year, and overall private sector pension contributions have fallen from 11.8 per cent in 2009 to 11.4 per cent this year.

Employers in banking, finance, insurance and professional services pay an average of 10.3 per cent of salary into schemes, compared with an industry average of 7.2 per cent. That gives a combined contribution from employer and employee of 13.6 per cent, on average.

The lowest contributions are made by companies in the retail sector: an average of 5.2 per cent of salary. Here, the combined contribution is only 9.2 per cent

However, businesses and individuals are feeling the pinch and reducing payments accordingly but individuals need to be aware of the impact on their future income.

According to the NAPF’s “pension quality mark” scheme, best practice is a minimum contribution rate of 10 per cent, of which 7 per cent should come from the employer.

Pension advisers suggest employees need to calculate what they are on target to receive in retirement and decide if extra investments are needed.

It has never been more important to get advice from a Financial Adviser. This will allow individuals to make advised decisions on how much should be invested in their future.

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