As the summer comes to close, there is often a ‘September surge’ as more people decide to go after their dream jobs. However, while salaries and work/life balance considerations are paramount for most potential jobseekers, many often forget to discuss pension plans that their employers may have in place. With that in mind, pension consolidation expert PensionBee has put together a list of five key questions that employees need to ask their prospective employers about pension schemes.

What is your employer contributing?

PensionBee advised that the first question should be around employer pension contributions. Overall define contribution schemes offer a minimum contribution of 8% of a salary, including what the employee has donated to a scheme under auto enrolment. But this can be far higher, as the amount that employers contribute can vary from between 3% of your salary up to well into double figures, which can make a difference of thousands of pounds.

‘Double matching’, when you increase what you put in and the employer doubles up on your contributions, is a very effective way of increasing the amount in your pension pot. If the combined contributions of the employee and employer takes you to over the 10% mark, then this is more than average.

Whereas if the mutual contribution is around 15%, you are in an above average position. Currently there is pressure on the Government to increase the minimum to 12% to improve retirement outcomes. Pension Bee said that in an ideal world 15% would be better.

If you pay that amount into a salary that starts at £30,000 at age 22, you would eventually accumulate £374,821 at age 65. This is a total which would match the Pensions and Lifetime Savings Association standards requirements to be enough for a moderate lifestyle in retirement.

Is the pension defined contribution or defined benefit?

It‘s also important to discover whether your pension plan is based on defined contribution or defined benefit conditions. Defined benefit pensions are schemes where your employer has agreed to pay a retirement income that is based on earnings throughout your time with the company or what you earn when you leave.

In effect, your employer takes responsibility for your pension pot where they typically add a high level of contributions. Although employees are also required to make some contributions from their salaries towards pension proceeds.

Defined benefit schemes are more generous in terms of what you receive at the point of retirement, and are usually associated with the public sector. However, they are becoming more of a rarity, as they can be difficult for employers to fund.

Defined contribution schemes are far more common in the private sector, and there is a very high chance that this is what you would be offered with a new employer. The aim is to grow a sizeable pension pot when finishing work through an investment portfolio.

Is the pension salary sacrifice, net pay or relief at source?

The next question to ask is whether a pension scheme is a sacrifice, a net pay or a relief at source? For example, net pay contributions are where the full amount of your contribution is taken before tax is deducted. This is to ensure that you will end up with a minimised tax bill on your pension earnings.

Whereas ‘relief at source’ contributions are where your payments are taken from your pay after your salary has been taxed. It’s important to note that you then receive the 20% basic rate tax relief added by your provider to your pension contribution.

If you are a high rate taxpayer then you can then claim extra tax relief via your tax return. Low earners though can be at a disadvantage in net pay schemes, as the relief at source contributors get the tax relief added to their pension, even if they don’t pay tax. It’s an anomaly that the Government has plans to correct for the low earners in net pay schemes by 2025.

While salary sacrifice is similar to net pay, it is also an agreement where an employee gives up part of his or her salary, which is paid into a pension instead by your employer rather than the contribution being made by the employee. It is an arrangement that also results in National Insurance savings.

Are there any other long-term savings benefits?

It’s not all about the pension. Some employers offer other long-term saving schemes, such as share incentive plans, save as you earn schemes and share option plans. This means that if your company is doing well then your rewards increase. There are tax advantages that come with these savings plans, so they maybe worth considering, but they are not substitutes for pensions.

Where is the investment going?

Finally, on ethical grounds you may be wary of just where your pensions portfolios are being invested. For example, data compiled  from Make My Money Matter uncovered that UK pension schemes invest approximately £112bn in fossil fuels annually, which may be unpalatable for many. So it is best to ask your employer whether your contributions are likely to be invested in sustainability-conscious funds, to ensure that there is no damaging environmental and social impact from your portfolio.

Pensions should not be overlooked

Becky O’Connor, the director of public affairs at PensionBee, commented: “When choosing a future employer there’s a lot at stake and your priorities will no doubt be focused around job satisfaction, career progression and of course, salary.”

“However, the relative generosity of a pension can be absolutely crucial to your overall financial circumstances in life, in fact a good pension, for example, one that pays 16% of your salary rather than 8%, can be better for your finances throughout your lifetime than a 1% higher starting salary. Yet pensions are an often overlooked part of the overall employment package.

“This is often down to a lack of information from employers about the pension scheme being provided as part of the application process. But with pensions making such a huge difference to retirement outcomes, they should arguably take greater prominence in the information given by employers and considered by applicants, as well as any other financial benefits on offer, such as Sharesave, share options, salary sacrifice car schemes, private health insurance, income protection insurance or shopping discounts.”