Are you making the most of your employer pension?

If you are one of the more fortunate expats that retain membership of an employer pension scheme, it is possible that you are not taking full advantage of the benefits that are on offer.

You see, the way a typical pension works is that staff pay a fixed percentage of their wage into the scheme and then the employer pays in as well.

What is less well known however, is that, especially among larger employers, additional “matched” contributions are available if a worker chooses to save beyond the standard level.

For example, Tesco operates a scheme where the basic worker contribution is 4% of salary and they then match this amount.

However, if an employee chooses to contribute more than the basic level, Tesco will match the increased amount too (up to a maximum of 7½% of salary).

The key, is that it all depends on whether staff are aware that their employer is offering to match (or more than match if you are higher up the corporate food chain) contributions above the threshold.

A lot of employers don’t make the additional match widely known. Which is hardly surprising as a) it will cost them more and b) they only introduced it grudgingly as they were under pressure from employees due to closing their original defined benefit pension scheme.

The solution is simply to check the pension section of your employee handbook or ask your friendly HR contact whether any such additional benefits are on the table.

Given that, according to data from Royal London, there are more that 3 million people who are not taking advantage of such offers, it is worth a simple call to find out if you are missing out on free money.

Make sure you leave your pension to the right person

According to figures from insurer Royal London, around three-quarters of a million people risk leaving their pension to the wrong person.

This generally occurs when someone’s circumstances have changed but they have not updated their ‘expression of wishes’ form or other important details.

For example, they may have divorced. However, even if they are now living with a new partner, the original instruction to the pension scheme or pension provider remains valid until it is actually revoked or changed.

Things are complicated further by the fact that, according to data from the Department of Work and Pensions, the average person collects 11 pensions through their working life.

Trying to track down all these schemes and make sure that all of them are kept up-to-date with your wishes can be quite a challenge.

Thankfully, there is at least a government site that helps you trace lost pensions. You can find it here.


How does cohabitation affect my pension

Defined benefit schemes

Defined benefit pension schemes often have very rigid rules in terms of death benefits.

A survivors pension will be typically paid out on death of the scheme member to a spouse, civil partner or dependent child. It will usually not be paid to a cohabitee.

In addition, a lump sum death benefit may be payable if the deceased dies before retirement. This can usually be paid to anyone that the member has nominated. However, there may be additional restrictions if the person nominated is not a spouse or civil partner.

Finally, even when a scheme does allow a cohabitees’ pension, if they only did so from a certain date, benefits will be calculated from that point in time.

For example, a scheme member died in 2018 with 25 years’ service and the scheme allowed cohabitees’ pension from 2015. In such a case, the cohabitees’ pension would be based on 3 years of service, not 25.

Defined contribution schemes

The pension freedoms rules that came into effect during 2015 brought the opportunity for full flexibility for defined contribution scheme members in relation to death benefits.

However, this does not mean that all defined contribution schemes offer this flexibility.

In the case of defined contribution occupational schemes, they might only offer lump sum benefits that are payable to whoever the member nominates, irrespective of relationship status. Any annuity/income option may only be available for dependents.

In some cases, a cohabitee may be covered if they are financially dependent on the scheme member. However this is not always the case and is dependent on the scheme trustees.

Conclusion

As you can see from the above, pension rules can be complex. Knowing how your specific scheme operates is so important.


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By Ross Naylor

Ross has been a financial adviser for the past 26 years. He uses the experience that he has gained over this time to help busy expats to understand their options, make smart decisions and avoid costly mistakes.