Martin Lewis has warned how opting out of a workplace pension scheme means you’re missing out on extra money from your boss – and important cash that will come in handy later in life
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You are automatically enrolled in the workplace pension scheme if you earn more than £10,000 a year, are over 22 or under state pension age.
You can choose to decline, but Martin warned that doing this means you’re missing out on extra money from your boss.
When you choose to join a workplace pension scheme, a minimum of 8% must be paid into the pension.
Employees will contribute 5%, with your employer paying at least 3%.
“If you opt out of the pension scheme, you won’t get this extra cash,” explains Martin.
“Everyone who is effectively opted in gets a raise… because your employer is giving you extra money that you can’t get, even though it’s not immediately usable.”
Your pension contributions are deducted from your salary, but this is money that you will be able to use later in life when you may really need it.
Workplace retirement is separate from your state pension, depending on your National Insurance contributions.
There’s also no guarantee that your state pension will cover all of your needs in later life – the new state pension is now worth up to 179.60 per week.
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How to prepare for retirement?
Your contributions are also deducted from your pre-tax paycheck, so Martin explains that you’ll pay “less than it sounds”.
“Pension savings come from wages BEFORE TAXES, so putting £100 a month into your pension only reduces your salary package by £80 (£60 for taxpayers with a 40% higher rate), ” he said.
“Plus at a minimum, if you put 5% in, your employer has to put 3% in.
“That means even with the minimum contribution, if you put out £100 a month your employer will put in £60, so a total of £160 a month is added to your pension , but that only costs you £80 (£60 at higher rates).”
The warning from Martin came after it was confirmed Another 17,000 workers will be automatically enrolled in the workplace pension scheme later this year.
The Government has confirmed the £10,000 income threshold will stay the same for the 2022-23 tax year – meaning thousands of people will benefit as wages rise.
As of April 1, 2022, national living wage will increase by 59p from £8.91 to £0.9.50 per hour. This adds up to £1,000 more annually for full-time UK workers.
Workers 23 years of age and older receive the nation’s living wage. For employees between the ages of 21 and 22, the minimum wage is £8.36, rising to £9.18 from April.
https://www.mirror.co.uk/money/martin-lewis-urges-millions-working-26266326 Martin Lewis urges millions of working Britons not to miss an easy 'wage raise'