UK workers who earn more than £10,000 are being urged to check their payslip for a ‘hidden’ pay rise.
All employers in the UK must automatically enrol staff into a pension scheme and make contributions to it if you earn at least £10,000 per year and you’re aged between 22 and State Pension age, which is currently 66.
Your employer must write to you when you’ve been automatically enrolled and tell you the date you were added, how much they’ll contribute, the type of pension scheme you’re in and how to leave if you want to.
This type of savings scheme is to provide you with money when you retire on top of your State Pension, so workers are urged to check they’ve been enrolled so as not to miss out on a huge amount of cash.
All workers who are eligible should be automatically enrolled and will pay a percentage of their salary into a pension scheme, unless you have chosen to opt out. But crucially, your employer is also required to contribute to your pension on top of your salary, which effectively gives you a pay rise as you’re getting extra money that you wouldn’t have otherwise received – even if you won’t get it right away.
In most automatic enrolment schemes, you’ll make contributions based on your total earnings between £6,240 and £50,270 a year before tax. The minimum amount your employer must pay is 3% and the minimum total auto-enrolment contribution is 8%, so you must pay 5% to meet this threshold.
The government will usually add money to your workplace pension in the form of tax relief if you pay Income Tax and pay into a personal or workplace pension. But even if you don’t pay Income Tax, you’ll still get an additional payment if your pension scheme uses ‘relief at source’ to add money to your pension pot.
The amount you and your employer pay towards your pension depends on the scheme you’re in and whether you’ve been automatically enrolled or you voluntarily ‘opted in’.
Most employers will allow staff to increase their contributions above the minimum 3% and may offer the option to ‘match’ the extra money staff put in up to a certain limit, meaning you can easily benefit from a bigger boost to your savings.
MoneySavingExpert founder Martin Lewis says millions of UK employees have made the “huge mistake” of opting out of pension auto-enrolment schemes, which effectively means giving up a pay rise.
Urging people not to opt out on his ITV Martin Lewis Money Show, he said: “Whether you are a basic 20% or higher 40% taxpayer, for every £100 you put in, on the minimums your employer would have to add £60 towards your pension pot. But then, we have to look at the tax here.
“Because of course, what you have to remember is for you to put in £100 you don’t actually lose £100, because most people – basic rate taxpayers – you only take home £80 of it, £20 would be tax. So in effect, you lose £80 in your pay packet but you get double that – £160 going into your pension.
“For a higher rate taxpayer it costs you £60 and you get £160 – nearly triple going into your pension, and that is unbeatable. There’s nothing out there like it. Which is why my big message here is, opt out and you’re effectively giving up a pay rise and you’re giving up the tax benefit too.”
Your employer should provide you with an annual pension statement which tells you how much has been paid in and you should also be able to log into your online pension savings account to check how much you have.
You can also make sure pension deductions are being taken each month and check the amount by looking at your payslip, although the figure you’ll see is dependent on what type of pension scheme you’re enrolled in.
The government explains: “Check with your employer or pension provider which arrangement your workplace pension uses. This determines what you’ll see on your payslip.
“For ‘Net Pay’ your employer takes your contribution from your pay before it’s taxed. You only pay tax on what’s left. This means you get full tax relief, no matter if you pay tax at the basic, higher or additional tax rate. The amount you’ll see on your payslip is your contribution plus the tax relief.
“For ‘relief at source’ your employer takes your pension contribution after taking tax and National Insurance from your pay. However much you earn, your pension provider then adds tax relief to your pension pot at the basic tax rate. With ‘relief at source’, the amount you see on your payslip is only your contributions, not the tax relief.”
