Martin Lewis warns workers could miss out on | European Markets

Martin Lewis has warned employees they risk lacking out on a “salary boost” by failing to contribute to a pension.

On this week’s Cash Present, the Cash Saving Professional founder defined that pensions have two “superpowers” that make them an unbeatable financial savings device. The primary key benefit is tax reduction, and the second is employer contributions.

Mr Lewis stated: “The money you put into your pension is from pre-tax salary. So, this is a superpower. You get tax relief.”

He broke it down additional: for a basic-rate taxpayer, placing £100 into a pension successfully solely prices £80 as a result of a 20% tax reduction is utilized upfront, both by lowering taxable income or by a top-up from HM Income and Customs (HMRC).

The advantages are even better for increased earners. He stated, “If you’re a higher 40% rate taxpayer, well then 40% tax would be taken off. So you’re getting £100, and it’s only costing you £60. If you’re lucky enough to be a top 45% rate taxpayer, well, you’re getting £100, and it’s only costing you £55.”

In contrast to regular financial savings accounts, this tax reduction signifies that pension contributions routinely obtain a financial enhance from the Authorities, one thing Mr Lewis known as “absolutely crucial” for employees to know.

The second main benefit, in accordance with Mr Lewis, comes from employer contributions in office pensions. He stated: “If you’re in a workplace pension, you’re automatically going to be opted in to getting a pension in most cases. You don’t choose it. You’re contributing to a pension and so is your employer, and that ‘so is your employer’ is crucially important.”

For a basic-rate taxpayer, which means after they contribute £80 (which is topped up to £100 as a consequence of tax reduction), an employer will usually add one other £60. This leads to a complete pension investment of £160, successfully doubling the worker’s contribution.

For top-rate taxpayers, a £55 contribution will be became £160 – almost tripling the unique quantity.

Mr Lewis stated: “That is just completely unbeatable. So in a way, if you were not to do it, you’re giving up a pay rise. Your company has to put extra money in your pay packet. You’re giving it up.”

Mr Lewis additionally clarified who’s routinely enrolled into a office pension. He stated: “If you’re aged 22 to 66 and you earn over £10,000, that is when you’re automatically opted in.”

Staff incomes between £6,240 and £10,000 can select to decide in and nonetheless obtain employer contributions. The identical applies to these aged 16–21 or 67–74 in the event that they earn above £6,240.

Encouraging younger employees to take benefit of pension financial savings early, he stated: “If you’re 19 and on a good whack, you know you’ve got no expenses. Probably you may not have kids at this point, you may not have a partner. It’s a time when you’ve got more disposable income. Get some money in your pension because then it’s got a long time to grow.”

One of Mr Lewis’ largest warnings was about decreasing contributions under the minimal threshold.

In most office pensions, the minimal complete contribution is 8% of earnings between £6,240 and £50,270, with staff contributing not less than 5% and employers not less than 3%.

Nonetheless, Mr Lewis warned: “If you go below the minimum, your employer does not have to do match contributions. So go below the minimum. You may not get anything.”

He strongly urged staff to test with their employer earlier than lowering contributions. He added: “If they say no, then you’re giving away the entire 3% salary boost, which you really probably shouldn’t be thinking of doing.”

The Martin Lewis Cash Present airs on Tuesdays at 8pm on ITV.