THOUSANDS of workers will soon get extra cash towards retirement.
Millions of Brits are already enrolled into a pension through their job automatically.
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From April a further 17,000 will be put on the scheme as a result of rising wages over the next year.
You are auto-enrolled into a workplace pension if you earn over £10,000 a year, are over 22 and below state pension age.
The £10,000 earnings threshold will stay the same for the 2022-23 tax year, the government has revealed.
Tom Selby, head of retirement policy at AJ Bell, said: “The decision to freeze the earnings level at which savers are automatically enrolled into a workplace pension scheme at £10,000 will result in thousands more people saving for retirement, many for the first time.”
Becky O’Connor, head of pensions and savings at interactive investor, said that while there was pressure on the government to get more people saving for retirement by reducing the threshold, they need to balance this against day-to-day income needs now.
She said: “Rises in the cost of living would make it hard to justify reducing the threshold currently and prioritising saving for the future rather than eating and heating now.”
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Once you earn over £10,000 you start paying into a pension automatically, unless you opt out.
You pay the minimum contribution of 5% of your earnings, though you can put in more.
You also get cash from your employer of 3%, though some employers put in more – it depends who you work for.
Your minimum contribution applies to anything you earn over £6,240 up to £50,270 and that will stay the same in 2022-23 too.
Those earning more than £12,570 also get extra cash on top through tax relief.
A loophole that means some workers earning between £10,000 and £12,570 miss out on tax relief will be closed from 2024 giving another boosts to retirement savings.
Selby said that over 1million people a year risk missing out on the tax relief they are due while they wait for the change.
To be auto-enrolled in a workplace pension, you must earn that minimum with a single employer and those earning more with multiple jobs are still missing out.
O’Connor said the government needs to consider ways of reaching these people “who can afford to make pension contributions and are not doing so because they do not currently reach the threshold for auto-enrolment.”
What is auto-enrolment?
Auto-enrolment is when you’re automatically placed into your workplace pension scheme, with your contribution deducted from your pay packet.
Bosses have had to automatically enrol staff into pension schemes since October 2012 to get workers saving for their golden years.
The only exception is if you’re under the age of 22 or earn under £10,000, in which case you have to ask to opt in.
A minimum of 8% must be paid into the pension, with you contributing 5% and your employer paying at least 3%.
Research by NOW: Pensions show around 2.5million workers aren’t enrolled in their workplace pension scheme.
Crucially, the contribution you make as an employee is deducted before tax – so the actual amount you’re putting away is less than it sounds.
For example, if you pay 20% tax on your earnings, and your pension contribution is £100, this only really costs you £80 as this is how much that amount would have been worth after tax.
While opting out of a workplace pension would increase your monthly salary, it’s best to only do this as a last resort, as you’ll have less in later life.
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