MONEY guru Martin Lewis has explained how those employed and under 22 or anyone on a low income could be in line for a hidden pay rise.
That's because those who earn under £10,000 a year or are aged under 22 are not automatically enrolled into employer pensions.
It means that they could be missing out on thousands of pounds over the course of their career.
In his latest blog, the founder of MoneySavingExpert explains how it works.
He said: "For those aged under 22 (or over state pension age), or earning under £10,000 a year, the default setting is to be often out of pension auto-enrolment.
"Yet you can choose to be a part of it, and in possibly the majority of cases, your firm can't refuse you".
In some cases they will also have to pay towards your pension – and if they don't automatically you could ask them to.
Those who are eligible for employer contributions and opt in will effectively be getting a pay rise, as your employer will giving you more money than it would have before.
But you should remember that by opting in you will reduce the amount that you get in your salary after tax, as it will be paid into your pension instead.
If you can't afford to do it now or have debts that you need to pay off first, then that is your priority and this won't work for you.
What is pensions auto-enrolment?
HERE’s what you need to know about pensions auto-enrolment:
What is pension auto-enrolment?
Since October 2012, employers have had to enrol their staff into workplace pension schemes as part of a government initiative to get people to save more for retirement.
When does auto-enrolment apply?
You will be automatically enrolled into your work's pension scheme if you meet the following criteria:
- You aren't already in a qualifying workplace scheme.
- You are aged at least 22.
- You are below state pension age.
- You earn more than £10,000 a year
- You work in the UK.
How much do I contribute?
There are minimum contributions that you and your employer must pay.
Your minimum contribution applies to anything you earn over £6,136 up to a limit of £50,000 (in the tax year 2019/20). This includes overtime and bonus payments.
A minimum of 8% must be paid into the pension, with you contributing 5% and your employer paying at least 3%.
What if I have more than one job?
For people with more than one job, each job is treated separately for automatic enrolment purposes.
Each of your employers will check whether you’re eligible to join their pension scheme. If you are, then you’ll be automatically enrolled in that employer’s workplace pension scheme.
Can I opt out?
You can choose to opt out, but you’ll miss out on the contributions from the government and from your employer. If you do choose to opt out you can opt back in later.
Who is eligible to opt in?
This is where it gets a little complex. Your employer has to let you join the pension scheme and add contributions if you are aged 16 to 21 and earn above £6,240 year.
Or if you are at state pension age, under 74 and earn above £6,240 a year.
Anyone who earns between £6,240 a year and is aged between 22 and 66.
If you are aged 16 to 74 and earn under £6,240 then you company doesn't have to pay contributions towards your pension but they must let you join if you want.
Of course, you could ask your company if it will match your contributions. If it won't then you may not find this as useful.
How much do you get?
It will vary. It depends on a number of factors, including your salary, how much you pay into your pension and how much your employer is paid.
When you save from your pension it comes from your salary before tax is applied. That means putting £50 a month into your pension actually costs you £40.
There are rules on how much you and your employer has to pay in, see the box above on auto-enrolment.
You can choose to pay more (if you can afford it) or your employer may pay a different amount.
Martin uses an example of a basic rate tax payer who pays in 5% and 3% from the employer, you could get £80 a month added to your pension.
Over the year that means you'd pay £480 and £960 would be added to your pot.
If you're over 55 you can get free advice via Pension Wise. While others can use The Pensions Advisory Service.
Consider your retirement options
If you are on a low income then it may not feel do-able to opt into an auto-enrolment scheme but you should do your research and think about how you are going to save for retirement.
It's likely that the state pension will not enough to fund your lifestyle in retirement, so having a pension is one solution.
This calculator from the MoneyAdviceService helps estimate your state pension age and income amount.
In order to pay for retirement you may want to get a private pension. You could do this through an employer scheme or set up your own one.
You may also want to think about whether you will stay with this employer for a long time.
For example, Brits lose hundreds of pounds by holding multiple pensions.
We explain your options and how to combine them.
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