MARTIN Lewis has issued a warning to households who could be missing out on thousands in “hidden pay rises”.
That’s if you opt out of auto-enrolment, which is when your employer adds pension contributions on top of your own.
Martin Lewis has warned households not to miss out on thousands of pounds through auto-enrolmentRex
Martin Lewis said everyone who opts into auto-enrolment pensions gets a free pay rise in his latest MoneySavingExpert (MSE) newsletter.
If you’re between 22 and the state pension age of 66 and earn at least £10,000 a year, you’ll be eligible.
The minimum your employer can add to your salary is 3% – which is if you earn up to £50,270 a year.
If you earn more, your employer can cap it as if you earned £50,270.
That brings the total pension contributions up to 8% – 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.
What is auto-enrolment and how do I opt in?
It was introduced by the government in 2012 as a way of helping to boost workers’ pensions.
Before that, you had to join a workplace pension on your own.
Employers will automatically enrol you into a workplace pension scheme if you meet the requirements, meaning you don’t need to opt in.
They’ll make monthly contributions and you also add to it yourself.
Your bosses should write to you when you’ve been automatically enrolled.
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.
How much could it add over the long term?
Keep in mind the earliest age you can start taking money from your workplace pension is 55.
So if you opt into auto-enrolment from your early 20s and stay in it until you’re 55, that could be thousands of pounds stored up over the years.
More ways to boost your savings
There are lots of ways to tell whether there’s any unclaimed money you’re entitled to.
Other than staying in your workplace pension, make sure to hunt around for old pension pots as an example.
You might go through a number of jobs in your lifetime, and not keeping track of those pension pots could leave you with unclaimed money by the time you retire.
You should have one statement per year from each of your providers – so make sure you store these in a safe place where you can easily come back to.
That way you know exactly what pensions you have.
There are also handy government tools like the pension tracing service which you can find online.
You just need to punch in your employer’s name and it’ll tell you where your pension is with.
You should also check if you’re eligible for Pension Credits.
These are a weekly, tax-free payment offered to people on a low income who’ve reached state pension age.
Pension Credit has just recently risen to £201.05 a week or for couples, to £306.85.
If your income is lower than this, you should be eligible for the benefit.