Money Saving Expert has warned people not to opt out of their workplace pension or drop contributions below five per cent
Workers have been issued a five per cent pension warning, as they risk “throwing away free cash”. You could be missing out on vital funds without even realising it.
In the UK, most people have access to two types of pension: the State Pension and a workplace pension. The State Pension is provided by the Government and is determined by the number of years you’ve made National Insurance (NI) contributions.
Workplace pensions, on the other hand, are arranged by your employer. Each new employer is typically required to set one up for you upon starting a new role, provided you’re eligible.
Financial experts, however, have warned against opting out of these schemes. The team at Money Saving Expert (MSE), the website founded by Martin Lewis, cautioned that opting out or even reducing your contributions could leave you significantly worse off.
MSE said: “Beware ‘opting out’ or even just dropping contributions. Opting out is usually a bad idea, as you’re throwing away free cash. See Martin’s don’t give up a pay rise blog for the very few times it may be worth considering.”
More specifically, the team warned that dropping contributions below five per cent could have serious repercussions. MSE continued: “Even more so, you may think ‘I just want to lower my contributions’. Yet if you lower it below the minimum five per cent, then your firm doesn’t need to contribute (many do, but they don’t have to), so check that by doing that you’re not losing all their cash.”
Martin had previously issued this warning in his weekly MSE newsletter, stating: “Don’t throw away a hidden pay rise. If you save, your firm must contribute too.
“I was asked in the show whether someone should opt out of their workplace pension and use a private pension instead. All the specialists and I immediately said no!”
Discussing a money purchase pension (also known as a defined contribution pension), he said: “Per £100 in your pension, the employer adds £60, so that’s £160 total going in, and with the tax relief too, this only costs you £80 as a basic rate taxpayer – meaning you get at least double invested compared to the cost to you.”
He urged people to “beware” of pulling out of the scheme, saying: “Opting out is usually a bad idea, as you’re throwing away free cash.”
Martin added: “Even if you think ‘I just want to lower my contributions’ beware: lower it below the minimum 5%, then your firm doesn’t need to contribute (many do, but they don’t have to), so check before any action.”
Further details are available on the MSE website here.
