Welcome to Money Matters: GLAMOUR’s weekly dive into the world of finance. We’re chatting all things personal finance, from contracting rights in the workplace to expert mortgage advice and saving for your first home, to ISAs and dealing with debt, to help empower you to make better choices. Now more than ever it's important to understand our money, but so many of us feel as if we don't have a handle on it – or worse, feel anxious and scared about money.
So each week, a woman in a unique situation will give us an honest breakdown of her finances, and our expert will tell her easy tips on exactly how to tackle it. So, take a seat, and let’s talk about money…
Let's talk money.
Carly* is a 28-year-old production assistant who lives in Liverpool with her partner and two cats. She works three days a week for a start-up production company and really loves her job: she'd like to work full-time hours but has been told there's no budget for that.
She describes herself as “absolutely useless at saving” and worries about not being able to afford things – like a car, a house, a child (!) – in the future. She can't even begin to think about what she will do for money when she retires.
Carly's partner has told her she should be enrolled in a pension scheme at work, which will automatically help her save for later on in life. She's received emails from work about pensions but never really understood what they meant. Is the money deducted from her wages, or does her employer pay it? Does she get a say in how much money goes into her pension? Will she get more in her pension if she goes full-time? And can she withdraw her pension savings before she retires?
MY ACCOUNTS
Current account: £2,100
Savings account: £2,100
MY INCOMINGS
Annual salary pre-tax: £21,000
Annual salary post-tax: £17,841
Monthly wage pre-tax: £1,750
Monthly wage post-tax: £1,486.75
Other incoming payments: £0
MY OUTGOINGS
Rent/mortgage: £635
Bills: £150
Splurges: £0
Other: £200
Any student loan/credit cards/overdrafts etc: I currently have over £30,000 left to pay in student loan debt.
MY MONEY THOUGHTS
My worst money habit: Distracting myself whenever I have to think about money or pensions.
My biggest money worry: Not understanding enough about pensions and then regretting it when I retire!
My financial hopes for the future: That I can go full-time at my job and save up for my future.
Current money mood: 🤑🐈🤔
WHAT SAMANTHA GOULD, FINANCIAL ADVISOR AND PENSIONS EXPERT AT NOW PENSIONS SAYS:
What is a workplace pension scheme and how does it work?
A workplace pension scheme (also known as automatic enrolment) is a very cost-effective way to save for your retirement. Not only do you put money into your pension, but so too does your employer and you receive tax relief via the government on top. That's extra money you wouldn't get if you weren't in the pension.
Current rules state that any employee earning over £10,000 per year and aged between 22 and 65 will be automatically enrolled into their workplace pension scheme. As you are earning above the £10,000 threshold, you should have been enrolled into their scheme, but it is worth checking with your employer.
It is important to know that if you are aged between 16 and 21 you can ask to join your workplace pension scheme, but the employer does not have to contribute.
How much does my employer pay and how much do I pay and do I get a say in how much goes into my pension?
Current rules state an employer must pay in 3% and you (the employee) pay in 5% making a total contribution of 8%, which is deducted from your wages. Yet this is based on your qualifying earnings, which is after the first £6,240 is deducted. Based on your annual earnings of £21,000 you will be paying your contributions on the qualifying £14,760. You will be able to find out exactly what you are contributing every month on your pay slips.
It’s also important to know you can contribute more than the required 5% and some employers do match an employee’s contributions up to a certain level. For example, some employers offer to match their employee's contributions at 10%. This means 20% of your salary can be paid in, but only costing you 10% (with your employer paying in the other 10%). This is a great way to build up your pension savings and you may also benefit from tax relief from the government on top.
There is no technical limit on how much you can contribute but tax relief is only available on contributions up to the annual allowance of £40,000. Any contributions over this will be taxed.
Let's talk money.
Will I get more in my pension if I go full-time?
The amount you contribute per month will be dependent on your earnings. If you switch to full-time hours (and greater pay), then your monthly contributions will increase.
When can I get my money and start withdrawing from my pension?
You can usually withdraw money from your workplace pension from age 55, and take up to 25% of your pension tax-free. This rises to age 57 from 2028.
What is the state pension and will I qualify?
You can only receive your state pension when you reach the state pension age, which in 2022 is age 66 for both men and women. Eligibility for the state pension is dependent on your National Insurance contributions.
To qualify for the full state pension, you will need 35 years of NI contributions. But anything between 10 and 35 years of NI contributions would qualify for a proportional state pension.It is important to remember that the state pension age does keep increasing as we are all living longer and is likely to be above age 70 by the time you come to retirement.
If you fall under the required 10 years NI contributions, you will likely receive pension credits - a benefit designed to ensure you have a minimum level of income once you reach state pension age.
Find out more about NOW: Pensions' mission to create a fairer UK pension system here.
Let's talk about money.
