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Negotiating your pension with your employer

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Lesson time
3 min.

In this lesson you will learn 💸

  • Why it is important to negotiate your pension
     
  • How you can begin the process with your employer

Why negotiate your pension?

We know, we know...most of us would take a pay rise over a pension change any day of the week. Who doesn't want more money right now?! There are some profound long-term benefits to be found in negotiating your pension that the future you will thank you for!

This is especially important for women because of the pension gender gap. In the UK, the 2020 average gap was 38%. With women living longer and earning less than men, not negotiating pension contributions could mean the difference between the retirement you deserve and the one you can afford.

What do you need to know?

1. How much your employer currently contributes to your pension.

In the UK, your employer must pay at least the minimum contributions each month. In the standard automatic enrollment scheme, this is 3% of your total earnings. You'll find the exact figure in your payslip.

Tip 📌

Your employer can never:

  • Encourage or force you to opt-out of a pension scheme
     
  • Unfairly dismiss or discriminate against you for staying in a pension scheme
     
  • Imply opting out of a pension scheme will get you a job
     
  • Close your pension scheme without auto-enrolling you into a new one

2. Basic information about your company

You should understand the capabilities of your company before you begin negotiating. Research the company size, number of employees, and talk to colleagues on similar company levels and pay grades - what do their employer pension contributions look like? 

Although this can vary from company to company, larger organisations will generally have more capability to offer a higher pension contribution. If you're part of a small team, you should negotiate what you feel you are entitled to, but make sure that this is realistic with your employer's ability.

3. What do you want to end up with?

Some additional pension benefits can include death in service benefits, a full ill-health retirement pension, and a tax-free lump sum option. Explore your options, and consult your financial plan to decide which - if any - additional benefits may be good for you.

If you are increasing your pension contributions, ask your employer if they will match it or increase their contribution percentage. This can be a great aid in boosting your retirement pot.

True or false? 🎯

Paying an additional portion of your salary into your pension is known as a "salary sacrifice".

👏 Well done!

🤨 That's unfortunately not correct 

Paying an additional portion of your salary into your pension is known as salary sacrifice or salary exchange.

What about a 'Salary Sacrifice'?

Paying an additional portion of your salary into your pension can lead to income tax relief, as well as reducing the National Insurance contributions you pay. 

A salary sacrifice may not be a beneficial option if you:

  • Do not currently pay tax
     
  • Receive benefits that a reduced income could disrupt (i.e. child tax credit)
     
  • Want to take out future loans, as a reduced income may affect how much money lenders will grant you

Key takeaways

Hopefully you now understand why it's important to negotiate your pension, and you might even feel more motivated to get the process started for yourself! Just remember, if you believe that what you're asking for it fair and worthwhile, it's always worth having an initial conversation!

🎉💰 Congratulations!

You're just a step away from wrapping up this chapter. Next we'll be exploring how you can make your pension 'green' 🪴

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