SAVE
You’ll probably be in your 20s or 30s when you start saving into a workplace pension like the Cummins UK Pension Plan. Whether you’re new to pensions or simply new to the Plan, take some time to think carefully about how much to save and if that’s right for you. The more you save, the bigger your pension fund will be when you reach retirement, so it’s important to save as much as you can.
HOW MUCH TO SAVE
Many experts suggest a general rule of thumb is to take your age when you start saving and use half of it as a percentage of your income. So, if you start saving when you’re 28, you’ll need to be saving 14%; if you start saving when you’re 40, you’ll need to save 20%. The earlier you start saving, the better. The good news is that pension saving is a long-term thing, which gives you plenty of time to build up your pension fund for your future.
SAVE MORE
When you join the Plan, you automatically start paying contributions of 7% of your pensionable pay, and so you benefit from the maximum Company contribution of 9% straightaway.
| You pay | Cummins pays | Total contributions |
| 7% | 9% | 16% |
You can choose to pay more or less than this, but the minimum you must contribute is 3% of your pensionable pay and Cummins will pay 5%. These basic contributions can’t be changed.
If you want to save more than the basic amount, you can choose to pay saver contributions up to a further 4%. Saver contributions can be changed and are matched by Cummins. You can increase or reduce your saver contributions and the Company’s saver contributions change accordingly. Click on the graphic to see how paying more works out.
You pay
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Cummins pays
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Total contributions
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Additional voluntary contributions
If you want to save more than the maximum saver contributions, you can pay extra contributions called additional voluntary contributions (AVCs), either once in a while or as a regular amount. Unlike basic and saver contributions, your AVCs aren’t matched by the Company.
It costs less than you think
You don’t have to pay tax on the money you save into the Plan, up to certain limits, which means increasing your contributions won’t cost as much as you might think. Your contributions are deducted from your pay before your tax is calculated. This happens automatically through the Company payroll. If you’re a basic-rate taxpayer, every £1 you contribute to the Plan actually costs you just 80p (for a higher-rate taxpayer, each £1 costs just 60p). You pay your contributions using SMART, which is a salary sacrifice arrangement that brings the cost of saving £1 down even further to 72p.
TAX ALLOWANCES
Saving into a pension plan is a tax-efficient way to save for your retirement. The government sets a limit on the amount of pension contributions you can make in a year that get tax relief. This is called the annual allowance and it’s currently £60,000 for most people.
If you earn more than £200,000 in a year and have an adjusted income over £260,000, your annual allowance may be reduced and could be as low as £10,000.
If you’ve already taken some pension savings flexibly, your annual allowance is reduced to £10,000.
You can find out more about pension tax allowances on the government website.
