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The pension questions you should ask before you accept a new job

Joanna Faith
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Joanna Faith

When you receive a job offer, it’s normal to ask about headline salary. But it could also be worth checking how much your new employer will contribute to your pension as the generosity of their scheme could make a big difference to your retirement.

All employers must automatically enrol eligible staff into a workplace pension scheme, under new rules introduced by the government in 2012.

The minimum contribution is 8 per cent of which 3 per cent must be made by the employer.

However, nearly half (45 per cent) of private sector employers contribute slightly above this statutory minimum and a quarter (24 per cent) contribute well above it, according to research by pension firm Aegon.

The report also shows 29 per cent of private sector employers use their workplace pension as part of the benefits package to attract new staff.

Analysis shows how differences in employer contributions can drastically affect how much money you end up with when you retire.

According to Aegon findings, a 30-year-old on a £27,000 salary receiving the statutory minimum employer contribution of 3 per cent could be £95,750 worse off at state pension age compared to an employee of the same age and on the same salary but with a 6 per cent employer contribution.

This assumes earnings growth of 2 per cent a year and investment growth on funds of 4.25 per cent a year after fees.

Does your employer go above and beyond?

Steven Cameron, pensions director at Aegon, said: “Considering your pension may not be top of the list when changing jobs but the value of employer contributions should not be underestimated.

“Many employees are unaware of the ‘free money’ in the form of employer contributions that is added to their workplace pension and how significant the differences between an employer who pays the minimum and one who goes above and beyond will be.”

Cameron suggests people switching jobs should also ask if they new firm offers ‘contribution matching’ – which is when the employer pays more into the pension scheme if the employee increases their contribution.

“Some employers promote their more generous pension scheme rather than headline salary as a means to attract new staff,” he said.

“It’s important job changers take this into account as a higher salary isn’t necessarily better if it comes with a lower pension contribution.”