Martin Lewis hosted a special edition of his Money Show Live TV show this week that focused on corporate and personal pensions.
Navigating the world of pensions can be difficult but is essential for anyone looking to make the most of their retirement years, as a decent pension pot can improve living standards significantly later in life.
Workplace pensions have come a long way in the decade since auto-enrollment was introduced, and while it can be hard to see extra money disappearing from your pay packet each month, it’s something that Martin Lewis said is his retirement will reap its own rewards and is effectively a “wage increase” of the pension.
The founder of MoneySavingExpert.com went a step further and warned any employee who is currently paying into a company pension plan and is thinking about opting out – something many may be considering in order to combat the cost-of-living crisis that is about to become an even bigger one financial pressure on household budgets from April.
Martin explained that being automatically enrolled in a company pension means that “most employees are now saving by default”. So if you are aged between 22 and state pension age and earn over £10,000 a year you will automatically be placed in a pension scheme.
Millions of employees will then receive a pension when they reach retirement age – as early as 55 if they wish – into which they and their employer have paid.
Under the rules of the scheme, at least 8% must be paid into the pot, with the employer having to contribute at least 3% of an employee’s monthly salary. This means workers must contribute 5% to meet the minimum.
Martin highlighted how a worker who pays £80 into an automatically registered pension will end up with £160 paid out when it’s time to move in.
For a higher taxpayer (40%), the amount paid in could be lower, meaning the return would be even higher when they receive their pension.
Martin explained: “For every £100 you put in as a minimum, your employer would need to add £60 to your pension pot.
“But property taxpayers don’t lose £100, you only take about £80 home – £20 would be taxed – so you lose £80 in your pay package but you get double that – £160 going into your pension. “
He added: “And that’s unbeatable.
“There’s nothing quite like it, so my big message here is that if you choose not to, you’re effectively giving up a raise and also the tax benefit.
“Obviously you’re going to take less home with you, but what you get in the retirement return is so important, so don’t get out unless you absolutely have to.”
But he added that it may be worth getting out if you already have a valuable pension plan that could then push you past the £1,073,100 lifetime allowance.
If there is an opportunity or your existing pension is complex, it may be worth consulting a financial advisor.
You can catch the latest episode of The Martin Lewis Money Show Live on the STV Player or ITV Hub.
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