Here, we investigate apprenticeships to ensure that you can get the very most out of them, without having to worry about the impact they may have on your pension. Given that most apprenticeships do not pay very much, it can be worrying to think about putting off starting a pension. However, we outline how you can circumnavigate those issues to help support both your career and your retirement. Finally, it is always recommended to seek your own personal pension advice to ensure that the plans you do have in place will provide you with enough cash to survive, when you come to retire.
Apprenticeships: what are they?
An apprenticeship is an option available to anyone over 16 who is not in full-time education and lives in the UK. Schemes vary slightly from nation to nation. However, each scheme means an individual can partake in a hands-on job role whilst always studying for a qualification. It gives that individual the flexibility to get real world experience, while also gaining the education they require.
Qualifications that apprenticeships can help individuals study for, can range from GCSEs to NVQs, depending on what the job role requires. Importantly, apprenticeships themselves can vary in levels of difficulty. The starting level is Intermediate which is seen as the same as five good GCSEs. The highest level is a degree apprenticeship which is akin to a Bachelor’s or a Master’s. They are available in any industry - from accounting to transport.
The wage that an apprentice can look forward to varies. If you are under 19, or in your first year as an apprentice, you will earn £4.15 an hour. If you are over 19 and have already completed your first year as an apprentice, you will receive the minimum wage. From April 2020, this equates to:
£6.45 for 18-20 year olds,
£8.20 for 21-24 year olds
£8.72 for those above 25.
However, some generous employers may offer you more than this and you are also entitled to sick pay. As an apprentice, you cannot work more than 40 hours a week, and no less than 30. Plus, you can have some of the benefits that your employer provides full-time workers too - like childcare vouchers and holiday.
Pensions for apprentices
It may sound twee, but it’s never too soon to start saving - even pensions for children are not over the top. Doing so will help you build up the largest pension pot possible for your retirement - while having the least amount of impact on your net salary. By saving a little bit early on, each and every month, you will feel the impact of putting that money away less keenly than if you leave it until later on. The later you leave it, the larger portion of your salary will have to be put away regularly to help you build up a pension fund that can support the lifestyle you want in retirement.
When it comes to pensions for apprentices, putting money away is difficult given that you earn the minimum wage. However, it is not impossible. Plus, think about how the job specific skills you learn will put you ahead in the future when it comes to getting better paid jobs. In comparison to your competitors, you may be a far more employable prospect.
When does an employer contribute to my pension? Pension auto-enrolment criteria
While it may be tempting to think that because you are an apprentice, you will not have enough money to put aside into any workplace pensions schemes, that is not necessarily the case. What may be the case, however, is that you are not put into any workplace pensions through pension auto-enrolment.
To be put forward for pension auto-enrolment, you need to fit the following criteria (in the tax year 2020-21):
Auto-enrolment qualifying earnings: £10,000
Auto-enrolment age: The minimum age for auto-enrolment is 22 and over. However, if you do not meet the auto-enrolment qualifying age, you have the right to access your employer’s workplace scheme if you earn over £6,240
So auto-enrolment for apprentices may not always be a legal obligation that employers have to make. Apprenticeships may often be taken up by people under the auto-enrolment age or under the auto-enrolment minimum salary.
That is not to say though, that they are not allowed to be used by apprentices. It is possible to access a workplace pension for apprentices. For, it could very well be the case that you earn more than £6,240 even if you are under 22. In that case, if you choose to pay into the scheme, your employer has to as well - as they would do with regular employees. If you do, they are required to pay 3% of your earnings into your pension. For those that earn less than £6,240, you can still join the scheme. However, employers do not have to pay in like they would do otherwise.
Advantages of starting a pension early
There are so many reasons and benefits that make starting a pension early on in your career one of the smartest moves you can take.
Firstly, it simply gives you more time. The longer you save for your retirement, the bigger your pension pot will be when you stop working. Additionally, that time gives your investments more time to grow. The gains that the stock market can make over your career can be large, but you should always check performances over time.
Importantly, the more time you give yourself to save for your retirement, the less vulnerable you are to setbacks. Consider when Lehman Brothers went bankrupt or the impact of the Coronavirus pandemic. That has real implications on the returns that pension funds made on investments. Many investors will have lost some of their investment value due to the crashes in the stock market. The more you have invested, and the more time you have until your retirement day, the more chance you give yourself of recouping those losses overall.
Good pension planning tactics
In addition to starting to pay into your pension early - even if you are an apprentice – there are other tactics you can employ to ensure that you are in the best financial shape you can be when it comes to retirement.
In addition to paying into your pension pot early, do so regularly. Many auto-enrolment schemes mean that you will pay out of your monthly pay packet before tax, so you won’t even notice it.
However, it is important to stay abreast of your pension too. We all move jobs far more frequently than we ever did. Gone are the days where we left university and were employed by one company until we retired. Instead, we move firms multiple times leaving us enrolled in many different pensions. It means that we can lose track of our investments, but also lose track of how those investments are made. It’s important to review your pension performance to know where you stand financially.
Also, it’s important to know that those investments are suitable for you and your situation. The older you get, generally speaking, the more risk-averse you become so it’s important to see whether your pension fund has skewed your investments to the safer end of the spectrum. Finally, seek pension advice as and when you can. Doing so will ensure that you are on course for achieving what you want and need for your retirement.
Pensions vs ISA
With so many different financial products and schemes out there, it can be difficult to know what is the best one for you, particularly when looking at pensions vs ISAs. Deciding on which one works for you, is best done by working through your own individual circumstances with a financial advisor or pension professional. The benefits that both a pension and ISA offer are different and can impact people in different ways. Those differences are a result of differences in age, salary and outgoings - all of which a pension advisor will work through with you to decide what is the best way forward.
Starting your career on a low salary can make it tempting to defer thinking about your pension until you start earning more. However, the problem with this is that you simply kick the can a little bit further down the road. Starting to save for your pension as soon as possible is one of the best things that any of us can do. You can use our handy pension calculator to understand how much retirement income you will need. So if you are an apprentice without a pension, ask your employer about their workplace scheme today.