Have you joined yet? Don’t miss out

Not joining a work pension is like taking a pay cut, says Paul Lewis

Ezra Bailey

Are you being short changed on your pension at work? If you are not yet 66, and at least 22, and you earn £192 a week or more (that is £833 a month or £10,000 a year, and the equivalent of 22 hours a week on the minimum wage), then you should be automatically enrolled into a pension. If you pass those tests and are not being auto enrolled, your employer is breaking the law. Ask them to put you into the pension scheme.

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However, that earnings limit is per job, so if you do three jobs each paying, say, £170 a week, then you will not be auto-enrolled even though in total you are earning more than £26,000 a year.

People earning less than £10,000 a year are not automatically enrolled into the firm’s pension, but can choose to join. If you are under
75 and you earn at least £120 a week then your employer will also have to pay into the pension.

So if do not join the pension you lose out on your employer’s contribution – in effect taking a pay cut. Second, for most people there is a tax break from the Treasury that means for every £1 that you pay into your pension, the Treasury boosts it to £1.25. Some people on low earnings do not get that tax boost – it depends how they are paid. The good way is “tax relief at source”, which means you get the tax boost. The bad way is called “net pay arrangement”. You cannot choose which way you are paid, but with a net pay arrangement you will not get the
tax relief unless you earn at least £12,570 a year with that employer.

But even without the tax boost you could be missing out on up to £188 a year from your boss paid into your pension.  If you work full time on the national living wage, then about £890 a year goes into the pension from you, your employer and the Treasury. Not a huge amount, but
better than nothing. Ask your employer if you can pay in more: some will match extra contributions that employees make.

For more information, search on moneyadviceservice.org.uk for “auto enrolment”.

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Paul Lewis presents Money Box on Radio 4. If you have a question for Paul please email paul.lewis@radiotimes.com and he will try to answer your question through his column