Martin Lewis warns workers are missing out on £1,000s in free cash due to mistake – how to avoid it
MARTIN Lewis has issued a warning to workers who could be missing out on thousands of pounds towards their pension pot.
The consumer champion explained how you could be losing money by opting out of auto-enrolment at work.
Auto-enrolment is a process whereby your employer automatically adds pension contributions on top of your own.
Government figures from October last year suggest thousands could be missing out on the pension boost by opting out of the scheme.
On the latest episode of his ITV Money Show, Martin explained why staying in auto-enrolment was important.
He said: “If you opt out of your auto-enrolment pension you’re effectively giving up a pay rise because they (employers) match your contributions to a certain level.”
What is auto-enrolment?
The government introduced auto-enrolment in 2012 as a way of helping to boost workers’ pensions.
Before then, the responsibility of joining a workplace pension was on the employee.
Under the scheme, employers have to automatically enrol you into a workplace pension scheme and make monthly contributions.
You also make contributions yourself.
But to be in the scheme you have to be over 22 and under the state pension age.
Plus, you have to be earning at least £10,000 a year.
Your bosses should write to you when you’ve been automatically enrolled.
A minimum of 8% has to be paid into the pension, with you contributing 5% and your employer paying at least 3%.
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.
While opting out of a workplace pension will increase your salary in the short term, it means you’ll be missing out on a bigger pension in retirement.
Plus, you’re effectively losing free cash as your employer won’t be topping it up.
The earliest age you can start taking money out of a workplace pension is 55.
So if you stay in auto-enrolment from your 20s all the way through your 50s, depending on your salary, you could end up getting thousands of pounds in free cash from your employer.