Martin Lewis warns households not to throw away ‘hidden pay rise’ worth £1,000s – how to get it
MARTIN Lewis’ MoneySavingExpert.com is urging workers to make the most of a “hidden pay rise” worth thousands of pounds.
The consumer champion’s website issued the stark warning in its latest newsletter.
Households will miss out on the pay rise by opting out of auto-enrolment.
The scheme works by you sacrificing some of your monthly salary to put towards a workplace pension, with your employer topping it up.
Crucially, the contribution you make as an employee is deducted before tax – so the actual amount you’re putting away is less than it sounds.
As an example, if you pay 20% tax on your earnings, and your pension contribution is £80, this actually only costs you £64.
Lewis said anyone aged 22 to 66 and earning £10,000 or more a year qualifies for auto-enrolment.
The newsletter read: “If you save, your firm must contribute too. Don’t throw away a hidden pay rise.
“Opting out is almost always a bad idea, as you’re throwing away free cash.”
What is auto-enrolment and how do I opt in?
Auto-enrolment was introduced by the Government in 2012 as a way of helping workers boost their pensions.
Before that, you had to join a workplace pension of your own.
Employers automatically enrol you into a workplace pension scheme if you meet the requirements, meaning you don’t have to do anything.
It makes monthly contributions and you also add to it yourself.
Your bosses or HR department should write to you when you’ve been automatically enrolled.
You can opt out of automatic enrolment, but it means you’ll be missing out on a bigger pension later on down the line.
Plus, you’re effectively losing tax-free cash as your employer won’t be topping it up.
Bear in mind, the earliest age you can start taking money from your workplace pension is 55.
But either way, if you opt into auto-enrolment from your early 20s and stay in it until you’re 55, you could be thousands of pounds better off in the long-term.
What is pensions auto-enrolment?
HERE's what you need to know about pensions auto-enrolment:
What is pension auto-enrolment?
Since October 2012, employers have had to enrol their staff into workplace pension schemes as part of a government initiative to get people to save more for retirement.
When does auto-enrolment apply?
You will be automatically enrolled into your work’s pension scheme if you meet the following criteria:
- You aren’t already in a qualifying workplace scheme.
- You are aged at least 22.
- You are below state pension age.
- You earn more than £10,000 a year
- You work in the UK.
How much do I contribute?
There are minimum contributions that you and your employer must pay.
Your minimum contribution applies to anything you earn over £6,240 up to a limit of £50,270 in the current tax year. This includes overtime and bonus payments.
A minimum of 8% must be paid into the pension, with you contributing 5% and your employer paying at least 3%.
What if I have more than one job?
For people with more than one job, each job is treated separately for automatic enrolment purposes.
Each of your employers will check whether you’re eligible to join their pension scheme. If you are, then you’ll be automatically enrolled in that employer’s workplace pension scheme.
Can I opt out?
You can choose to opt out, but you’ll miss out on the contributions from the government and from your employer. If you do choose to opt out you can opt back in later.
How else to boost your savings
It’s worth tracing any lost workplace pensions, which in some cases can be worth tens of thousands of pounds.
You can start tracking down any lost pensions by finding any relevant paperwork and getting in touch with the pension provider.
Failing this, you can go to the HR department of your old employer to find out who the workplace pension provider was.
If neither of these options are available to you, you can try and source a lost pension via the Government’s online Pension Tracing Service.
You can also try calling the service on 0800 731 0193 or +44 (0)191 215 4491 if you are calling from outside the UK.
It’s free to use and lets you search a database of hundreds of thousands of pension schemes to find any contact details.
You can also boost your savings by adding any surplus cash you have from your monthly pay into an ISA or bank savings account.
You could opt for an easy-access savings account which lets you withdraw money whenever you want.
But they usually offer lower interest rates for the convenience.
Alternatively, you could try a fixed-rate savings account.
These generally offer higher interest rates and let you leave your cash in there for a set time.
But you often can only withdraw from them a select number of times, or not at all, until the end of that set time.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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