Martin Lewis has urged workers earning more than £10,000 to use their workplace pensions to secure what he describes as a 'free pay rise'. Speaking on his ITV Money Show Live, the personal finance expert explained that pension contributions come from pre-tax income, meaning savers effectively pay less tax and get more invested in their retirement pot.
Lewis highlighted that for a basic-rate taxpayer, putting £100 into a pension costs only £80 in their pay packet due to tax relief. For higher-rate taxpayers, the cost drops to £60, and for top-rate taxpayers at 45%, it falls to just £55. This 'superpower' of pensions makes them a highly efficient savings vehicle, particularly for those enrolled in workplace schemes.
For self-employed workers, Lewis confirmed they receive automatic 20% tax relief on pension contributions. Higher-rate self-employed taxpayers can claim additional relief through their self-assessment tax return, reducing their overall tax bill. He also noted that grandparents can contribute to a child's pension, with up to £3,600 a year allowed, costing only £2,880 after tax relief.
When a caller asked if they should opt out of their workplace pension and start a private one instead, Lewis gave an unequivocal 'no'. He emphasised that employer contributions make workplace pensions a better deal for most employees, warning against losing that benefit.
