MONEY saving expert Martin Lewis has urged workers to take advantage of one small change that could triple the size of your pension pot.
Speaking on his ITV show, the savings guru delivered a key piece of advice that can easily boost your retirement pot.
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The advice is aimed at workers saving into their company’s pension scheme.
This applies to millions of Brits, as under auto-enrolment more people than ever are in a workplace pension.
The benefit of saving through a workplace scheme is that your employer will contribute to your pension pot too.
It means the amount you save can be doubled, compared to those who save into a private pension and don’t enjoy contributions from an employer.
Martin Lewis said: “This is unbeatable – there’s nowt out there like it, which is why my big message is, opt out and you’re effectively giving up a pay rise and you’re giving up tax benefits too.”
Here’s how it works.
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Auto-enrolment was brought into effect in 2012, and means workers aged 21 or over and earning above a certain amount are automatically opted in to their company pension scheme.
Before this you had to ask to be enrolled, and this meant that few people did so.
It is possible to opt out, but you’ll be re-enrolled every three years or if you change job.
Under auto-enrolment you’ll put at least 5% of your salary into your pension.
But on top of this, your employer will also put in 3% of your salary.
And many are more generous too, with some offering to match what you save up to as much as 10%.
How to boost your pension pot
While 5% of your salary might sound like a lot to give up, Martin explained that because of the way tax relief works, it’s not as much as it sounds.
Basic rate taxpayers typically take home £80 of every £100 they earn, because £20 is given up in income tax.
For higher-rate tax payers, you take home £60 of every £100 you earn over the higher rate threshold.
But money you put into your pension is saved BEFORE tax.
That means if you put that £80 in your pension pot, the government effectively tops it up by £20 through tax relief.
With your employers’ contribution on top, that means £160 a month goes into your pension, and it only costs you £80.
Higher earners could even triple their money because of the tax relief and employer contributions.
Martin said: “Of course you’re going to take home less, but what you get in the pension return is so good, so don’t opt out unless you absolutely have to.
“For a higher rate taxpayer, it costs you £60 and you get £160, nearly treble going into your pension.”
If you put £160 a month into your pension for 30 years and it grew at 5% a year, you’d end up with more than £133,000.
And Martin urged workers who aren’t automatically-enrolled to ask their company if they can still opt in to the pension scheme.
Those aged between 16 and 74 and earning at least £6,742 should be able to join.
Small amounts can add up over time. On Martin’s show, one reader told how he’d saved £900 into a pension, which was worth £20,000 when he tracked it down years later.
Martin also told how pensioners could boost their income by up to £1,040 a year with a single phone call.
State Pension is set to increase in 2022, and we look at how much more you will get.
And here are five things you need to know about a massive pension change coming this year.
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