Money Saving Expert Martin Lewis: How a pay rise for millions could see you take home less

Changes to the auto-enrolment pension scheme, set to come into effect in April, are posed to have a ‘significant’ impact on your pay.

If you are aged over 22, or earning a minimum of £10,000 from a single job, you are enrolled automatically.

MoneySavingExpert say auto-enrolment ‘is an opportunity to boost your pension savings through your pay packet; with the added bonus of your employer and the Government making contributions.’

From April, your employer will be increasing their contributions to a minimum of 3 per cent. However, the overall minimum contribution is increasing to 8 per cent; meaning some employees will have to make up the extra 5 per cent if your employer does not.

The Chronicle reports , so is this ‘a hidden pay rise or a shock pay cut?’

Read More

Top Gloucestershire news stories

What is auto-enrolment?

The Government scheme began in 2012, and sets employee pension contributions as the default; you have to actively opt-out of the scheme.

Pension increases were introduced on April 6 2018, but there are two new changes being introduced this April:

  • The minimum employer contribution will increase from 2 per cent of your salary to 3 per cent.
  • The minimum total auto-enrollment contribution will increase to 8 per cent; the combined total of contributions from you and your employee.

What does this mean?

If your employer is only putting in the minimum 3 per cent, your contribution will automatically rise to 5 per cent to meet the total. This would be as much as £200 per £10,000 increase, without you doing anything.

However, if your employer is putting more than the minimum contribution in, for example 4 per cent, then your contribution will only rise to meet the total of 8 per cent.

yH5BAEAAAAALAAAAAABAAEAAAIBRAA7 - Money Saving Expert Martin Lewis: How a pay rise for millions could see you take home less

Money, money, money

It is worth noting, that your contribution is made from your gross income; so pre-tax.

This means that it actually costs less than it sounds.

What Martin Lewis has said

Money Saving Expert Martin Lewis, in a post on his site, wrote: “On April 6 2019, most UK workers aged 22 or over are due a hidden pay rise; but your employer needn’t tell you.

‘The effect is a bit of a mind twist.

yH5BAEAAAAALAAAAAABAAEAAAIBRAA7 - Money Saving Expert Martin Lewis: How a pay rise for millions could see you take home less

Money Saving Expert Martin Lewis

‘In effect, everyone who is opted in effectively gets a pay rise, as your employer is giving you even more money you wouldn’t have otherwise got, even though it’s not immediately usable.’

However, he added: ‘Everyone who is opted in gets less take-home pay. To get the extra money, in most cases you’ll have to contribute more now too; so your disposable income, the amount you can spend each month, is reduced.’

‘Don’t opt-out unless it is a last resort, because that means in effect you’re giving up extra money from your employer.’

Martin Lewis reveals that you can opt-out of auto-enrollment, but to consider it carefully as ‘generally, you’re sacrificing long-term cash for short-term gain.’

He advises if you have expensive debts, like payday loans, you may consider paying them off first before enrolling once more.

In addition, if you already have a large pension, ‘there is a risk auto-enrollment will put you over the lifetime allowance.’

To opt-out, you will need to go through your employer and pension advisor.

Download the Gloucestershire Live app

Gloucestershire Live now has an app.

You can get all the latest news, sport and lifestyle that matters to you in an easy-to-use, clear format.

You can also choose to receive notifications when the biggest stories break so you’re always keeping pace with what’s happening locally.

You can download the app now, just search for Gloucestershire Live in your app store.

 

Back to: UK News

Help us share

You may also like...

Lost your password? Please enter your username or email address. You will receive a link to create a new password via email.
We do not share your personal details with anyone.
HAVE A QUICK QUESTION?

Simply fill our short form and we will contact you back asap.

X
CONTACT US