An important warning for every worker in the UK-ByMartin Lewis

This is a warning for every worker in the UK. Have you turned down a pay rise without realising it? Millions have done or risk doing just that. It happens when your employer ‘auto-enrols’ you into a pension scheme but you decide to opt out - in most cases a huge mistake

(Photo: Getty Images)

Auto enrolment is a rule which says companies must opt-in their employees to pay towards a private pension – a savings scheme to provide money for you in later life, on top of the state pension.
However, crucially the firm must also contribute to your pension savings – on top of your salary. If you opt out of the pension scheme you don’t get this extra cash. The effect of this is a bit of a mind twist…

• EVERYONE WHO IS OPTED IN EFFECTIVELY GETS A PAYRISE… as your employer is giving you extra money you wouldn’t have got otherwise, even though it’s not immediately usable.
• EVERYONE WHO IS OPTED IN GETS LESS TAKE HOME PAY… to get the extra money, you must save now; so your disposable income, the amount you can spend each month, is reduced.

If you’re struggling that’s likely hard to hear. Yet not doing it means giving up extra cash, and in turn that means running the risk of a cold baked bean retirement; as whether in future the state pension alone will be enough to live off is a questionable. This is about saving now, so your living standards don’t plummet later.
Just to reiterate, DO NOTHING, and legally the default setting is some of your earnings are put towards pension saving. I’m in favour of this.
Many people are scared of making financial decisions, and inevitably most of us are guilty of focusing on the now, not the future. This way, make no decision, and it’s hopefully the right one.

It costs just £34 to get £100 added to pension savings

Is your pension worth what you think it is? (Photo: Getty)

If like most people you earn over £11,000 (and under £43,000) you pay basic 20% rate tax on all income above that, meaning for every £50 you earn you only take home £34 due to tax AND national insurance.
Yet pension savings, come from PRE-TAX salary, so putting £50 a month in your pension only reduces your pay packet by £34 (£29 for higher 40% rate taxpayers). Plus as often employers will match the £50 you put in, to get a total of £100 a month added to your pension, it only costs you £34.
Over a year at this level of saving you’d pay £410 but your pension will have £1,200 added to it. That’s unbeatable.

From 2018 all employers must auto-enrol staff

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All firms with over 50 people must currently auto enrol all staff aged over 22 who earn more than £10,000 a year, and gradually smaller firms must too, until by February 2018 all employers will.
The minimum contribution usually taken from your salary is 0.8% (so £8 per £1,000 earnt), and if you do that firms have to add at least 1%, and over the next few years that amount will rise.
Many firms will match your contributions above the minimum level, some adding up to 5% of your salary. It’s worth checking, and trying to take advantage.

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How much should you save toward your pension?

It's important to plan your pension

Be prepared to have the pants scared off you. There’s a very rough rule of thumb that shows how much you should put in your pension for a comfortable retirement – roughly a half to two thirds of your final salary.

1. Take the age you start your pension and halve it.
2. This is the percentage of your salary that needs saving each year until you retire (thankfully it includes your employer’s contribution too).So someone starting aged 20 would need 10%, aged 30 would need 15%.

For most people these amounts are impossible, so don’t get too hung up on it. Instead just use it to realise that a) the sooner you start the better b) put in as much as you can afford.
One trick to boost your pension contribution, if you’re lucky enough to ever get a pay rise, immediately put a quarter of the new money towards your pension. That way before you’re not used to earning it, you won’t miss it as much (I call this the forgotten gold technique!)

 Mirror Pension