Don't turn down free money!

Four and a half million people are turning down free money every month.

We live in very tough times financially, so it amazes me that four and a half million people are turning down free money every month.

It’s all to do with pensions. In particular, people who work for employers that run contributory pension schemes for their staff.

Here’s how it works: if you pay a portion of your monthly salary into a pension pot, your employer will then match that contribution each month.

So if you, say, paid 4% of your salary into your pot, your employer might pay in a further 4%. Then the tax man could pitch in and add a further 2% - assuming you’re a basic rate taxpayer.

If you keep paying in year-after-year, you could build up a healthy-sized pot which could give you a decent-sized pension when you retire.

I think this is a great way to save for your retirement, but amazingly, four and a half million people don’t take up this opportunity, according to Standard Life.

Ok, thinking about it, the word “amazing” is a bit strong.  I can understand that many folk prefer to have cash in their pay packet now instead of waiting for 20 years or 30 years to get any benefit. In fact, I even did this myself a few years ago.

But I now know that this was a big mistake. Look at these numbers from Standard Life. The average non-contributing employee misses out on £1270 a year. In other words, the employer is prepared to pay £1270 to the employee but the employee says: ‘no thanks.’

If you invested that sum every year for 30 years, you’d end up with a pension fund of around £110,000 when you retired. If you include your own personal contribution, you’d have a £220,000 fund for your retirement. Not bad huh?

The message is clear: if you employer is willing to pay money into your pension, make sure you sign up. Don’t turn down free money!