Martin Lewis is urging workers aged between 22 and 66 not to miss out on a pay rise (Image: ITV)
Martin Lewis has issued an “important warning” to UK workers born between 1959 and 2003 not to miss out on what is effectively a pay rise.
The founder is urging workers not to opt out of auto-enrolment as it will provide you with essential savings later in life.
Employers are required to automatically enrol staff into a pension scheme and make contributions to every worker aged between 22 and age – which is currently 66 – who earns at least £10,000 per year.
Your employer must write to you when you’ve been automatically enrolled and tell you the date you were added, how much they’ll contribute, the type of pension scheme you’re in and how to leave if you want to.
This type of pension is a savings scheme to provide you with money when you retire on top of the , so if you choose to opt out you’re missing out on a huge amount of cash.
But the crucial thing is that your employer is required to contribute to your pension savings on top of your salary. As such, you are effectively giving up a pay rise as your employer is giving you extra money that you wouldn’t have otherwise received, even if you won’t get it right away.
In most automatic enrolment schemes, you’ll make contributions based on your total earnings between £6,240 and £50,270 a year before tax. The minimum amount your employer must pay is 3% and the minimum total auto-enrolment contribution is 8%, so you must pay 5% to meet this threshold.
says millions of UK employees have opted out of pension auto-enrolment schemes – a decision he says is “a huge mistake”.
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Speaking on his ITV Martin Lewis Money Show, he explains: “Whether you are a basic 20% or higher 40% taxpayer, for every £100 you put in, on the minimums your employer would have to add £60 towards your pension pot. But then, we have to look at the tax here.
“Because of course, what you have to remember is for you to put in £100 you don’t actually lose £100, because most people – basic rate taxpayers – you only take home £80 of it, £20 would be tax. So in effect, you lose £80 in your pay packet but you get double that – £160 going into your pension.
“For a higher rate taxpayer it costs you £60 and you get £160 – nearly triple going into your pension, and that is unbeatable. There’s nothing out there like it. Which is why my big message here is, opt out and you’re effectively giving up a pay rise and you’re giving up the tax benefit too.
“Of course you’re going to take home less but what you get in the pension return – the doubling or nearly trebling – is so important, so don’t opt out unless you absolutely have to.”