Martin Lewis warns you could be losing out on £800 a year by turning down a pay rise without realising it
Money expert Martin Lewis warns that millions of UK employees are losing out on free cash by opting out of their workplace pension
YOU could be losing out on almost £800 a year by opting out of your workplace pension.
, who says million are missing out on extra cash because they're failing to save into a private pension.
It's as simple as this. Auto-enrolment is a way of saving for later life that's arranged by your employer.
A percentage of your pay packet is deducted every month and put towards your own personal private pension, and your employer must also put a percentage of money into your pension - on top of your salary.
By not opting into the pension scheme, you're missing out on your employer's free cash.
And while you might be getting that bit more in your monthly paycheck each month, the amount you're missing out on greatly outweighs this.
You might think retirement is a long way off and pension saving isn't required yet, but the earlier you start saving the better. And with free money on the table, it's a mistake not to take advantage.
How much can I earn?
If you earn more than £11,000 a year (and under £43,000), you pay a basic rate of tax at 20 per cent. That means for very £50 you earn you only take home £34, once tax and national insurance is deducted.
Pension savings come from pre-tax salary, which means putting £50 a month into your pension only reduces your pay packet by £34.
Because employers will often match the £50 you put in, you'll get £100 a month added to your pension at a cost to you of just £34.
Over a year at this level of saving you’d pay in £410, but your pension will have £1,200 added to it because of your employer's contributions. That's £790 of free money.
How much should you be saving?
IT sounds scary, but to have a comfortable retirement workers should save around half of their salary each month.
With bills, mortgage payments, food and holidays, this saving is impossible for most people.
But putting away as much as you can each month can make a considerable difference to your savings pot in later life.
Currently, the basic state pension for those born after 1951 is just £155.65 per week. With that in mind, any contribution to your pension now will give your savings a big boost in future.
According to Martin, the minimum contribution usually taken from your salary is 0.8 per cent (so £8 per £1,000 earned), and if you make just the minimum contribution, firms must add at least 1 per cent. Some firms will add up to 5 per cent of your salary.
By February next year, all employers - both large and small - will have to auto-enrol their staff. Currently, only firms with over 50 people must do it.
Is property better than a pension?
With a boom in buy-to-let landlords over the past few years, many Brits feel that property is a better investment than a pension.
But bear in mind that your employer won't contribute to your property and the money you get from it isn't tax-free, like it is with a pension.
If you’re fortunate enough to be able to invest in both, that is of course ideal.
What is auto-enrolment?
By 2018 all employers must provide a workplace pension scheme. This is called "automatic enrolment". Your employer must automatically enrol you into a pension scheme and make contributions to your pension if you are over the age of 22 and earn more than £10,000 per year. Your employer must write to you when you’ve been automatically enrolled into their workplace pension scheme, telling you the type of pension scheme you have been entered into, how much you'll have to pay in and how much they’ll contribute. The amount you and your employer pay towards the pension depends on various factors. If, for example, you're in a defined contribution scheme, you put in £40, your employer puts in £30, and you get £10 tax relief - so a total of £80 goes into your pension.
Is auto-enrolment for everyone?
Martin Lewis advises that those who really can't afford pension saving should opt out.
But think carefully before you do, as generally you’re sacrificing long-term cash for short-term gain.
If you have very expensive debts, such as payday loans, clear these before contributing to your workplace pension.
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