Pre­pare your­self for a hid­den fi­nan­cial boost

Gloucestershire Echo - - CASHING IN - MARTIN LEWIS You can Tweet me @Martinslew­is

THIS is a warn­ing to ev­ery UK worker aged 22 or over. You’re about to get a pay rise, but it may cost you, and you may not even be told. This is all about ‘auto-en­rol­ment’, where your em­ployer must con­trib­ute to­wards your pen­sion, and from April 6, it’ll have to give you even more.

The auto-en­rol­ment rule means em­ploy­ers must opt in all em­ploy­ees over 21, who earn £10,000 from that job, to pay to­wards a pri­vate pen­sion.

This is to pro­vide money for you in later life, on top of the state pen­sion. In other words, even if you do NOTH­ING, some of your salary will go to­wards sav­ing for a pen­sion rather than be part of your take-home pay.

Yet if you do this, the firm must also con­trib­ute ex­tra to this pen­sion fund. From April 6, the new tax year, the min­i­mum amount you and your em­ployer will con­trib­ute is in­creas­ing sub­stan­tially. The ef­fect of that is a bit of a mind twist…

EV­ERY­ONE WHO IS OPTED IN EF­FEC­TIVELY GETS A PAY RISE…

as your em­ployer is giv­ing you more money, even if it’s not im­me­di­ately us­able. ■

EV­ERY­ONE WHO IS OPTED IN GETS LESS TAKE-HOME PAY…

To get the ex­tra money, you’ll usu­ally have to con­trib­ute more too; so your dis­pos­able in­come is re­duced.

Thank­fully this will be off­set by in­come tax thresh­olds in­creas­ing at the same time (see mse.me/tax­calc).

If your com­pany gives you a fi­nal salary pen­sion, where the amount you get is based on the num­ber of years you worked for it and your fi­nal salary, it means you’re part of a dif­fer­ent scheme. If it meets min­i­mum gov­ern­ment stan­dards for things such as charges, de­fault in­vest­ment funds, and not just con­tri­bu­tion amounts, join­ing auto-en­rol­ment doesn’t ap­ply.

The April 6, 2019 changes

THE min­i­mum auto-en­rol­ment con­tri­bu­tion rises to 8% (from 5%) of your pre-tax salary above £6,316 and be­low £50,000.

The min­i­mum your em­ployer has to con­trib­ute in­creases to 3% (from 2%) of your salary be­tween the lim­its above.

If your em­ployer only puts in the min­i­mum 3%, your con­tri­bu­tion will au­to­mat­i­cally rise to 5% to meet the 8% to­tal with­out you do­ing any­thing. If your firm puts in more than the min­i­mum, your con­tri­bu­tion won’t need to rise as much.

Opt­ing out is a mis­take for most

IF YOU want to, you can opt out of con­tribut­ing to your pen­sion, yet don’t do it un­less it’s a last re­sort – that means you’re ef­fec­tively giv­ing up ex­tra money from your em­ployer.

If you’re strug­gling, you may be tempted, as los­ing dis­pos­able in­come is hard to bear. Yet I’d only con­sider it if you’ve very ex­pen­sive debts like pay­day loans, in which case clear them, then opt back in; if you’re near re­tire­ment with lit­tle sav­ings, there is a rare sce­nario that hav­ing a big­ger pen­sion pot could re­duce your ben­e­fits, or if you al­ready have a very large pen­sion and it’ll take you over the £1.03m life­time al­lowance.

Oth­er­wise steer clear. Opt­ing out runs the risk of a cold baked bean re­tire­ment, as whether in fu­ture the state pen­sion alone will be enough to live off is ques­tion­able. This is about sav­ing now, so your liv­ing stan­dards don’t plum­met later.

■ Martin Lewis is founder and chair of Moneysavin­g­ex­pert. com. Go to mon­eysav­ing ex­pert.com/lat­est­tip to get his free Money Tips email.

You’ll get more money from your em­ployer If you opt in

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