Martin Lewis warns Brits they're 'throwing away free cash' with pension move
Martin Lewis has issued urgent pension advice, warning that individuals could be "throwing away free cash". This action could result in financial loss in the long term.
Writing for Money Saving Expert (MSE), Martin emphasised the significance of maintaining your workplace pension. He stated that opting out or reducing your contributions is a "bad idea", as it could mean missing out on crucial pension contributions from your employer.
As reported by Express.co.uk, Martin clarified that employees aged 22 to 66 earning over £10,000 are automatically enrolled into a pension. He said: "In other words, you are 'opted in' to contributing without being asked.
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"I'm a supporter of this as it pushes people into good financial behaviour and, crucially, because if you're opted in, your employer must contribute too."
According to Martin, the minimum contribution is eight percent on earnings between £6,240 and £50,270. Your employer must contribute a minimum three percent-worth of that (meaning you pay five percent) - though some contribute more.
"This is a huge boon," he continued. "It means it pays you more in total (though of course, your disposable income is less due to your contribution)." As an example, if you pay £100 into your pension, the employer adds £60, so that's £160 total going in. Martin said: "Yet due to the tax relief, this only costs you £80.
"So that's double invested compared to what it costs you, and this is accelerated for those on higher tax rates (I'll leave you to decide whether that's fair or not)." However, he also issued a stark warning against opting out of pension contributions, advising: "Beware 'opting out' or even just dropping contributions."
He elaborated on the potential pitfalls, stating: "Opting out is usually a bad idea, as you're throwing away free cash. See my old don't give up a pay rise blog for the very few times it may be worth considering. Even more so, you may think 'I just want to lower my contributions'."
He further cautioned that reducing contributions below the minimum five percent could mean missing out on employer contributions. Martin added: "Yet if you lower it below the minimum five percent, then your firm doesn't need to contribute (many do, but they don't have to), so check that by doing that you're not losing all their cash."
Lewis also reminded workers earning under £10,000 or those outside the age bracket that they might still be eligible for a workplace pension scheme and should inquire at work. A workplace pension is separate from the State Pension, which is based on one's National Insurance record.
