Workers have received a 5% pension warning as they could be “throwing away free cash”. You might be losing out on essential funds without even knowing it.
However, financial experts have cautioned against opting out of these schemes. The team at Money Saving Expert (MSE), the website founded by Martin Lewis, explained that opting out or even lowering your contributions could mean you’re losing out.
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 advised that lowering your contributions below 5% could have serious consequences. MSE continued: “Even more so, you may think ‘I just want to lower my contributions’.
“Yet if you lower it below the minimum 5%, 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 warned about this in his weekly MSE newsletter. Here he said: “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!”
Referring to 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 cautioned people to “beware” of withdrawing from the scheme. He explained: “Opting out is usually a bad idea, as you’re throwing away free cash.”
Martin continued: “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.”
For more information, visit the MSE website here.