Martin Lewis’s Money Saving Expert pensions alert could add £1,000s to your pot | Personal Finance | Finance

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Martin Lewis busts state pension myth

Britons have faced grim warnings about the need to delay retirement in order to cope with heavy debts, including mortgages, that are being carried into old age.
As a result, it has never been more important to ensure that you make the most of the pension options available, however most people have little or no idea how they work, how much they need to put aside and what these nest eggs will be worth.
Martin Lewis, founder of Money Saving Expert (MSE), says in the group’s latest newsletter: “We typically work for 45ish of our 85-year lifespan. So that work-income needs to cover many fallow years. Saving for retirement is crucial. Yet pensions are ill-understood and have a bad rap.”

The MSE team has produced a 19-point guide offering a selection of tips and hacks to help people understand how to navigate the pensions maze.

The guide covers:

  • State pensions: Income from the state once you hit a set age (today 66+).
  • Private pensions: Tax-free savings only usable from age 55.
  • Company pensions: Pensions your employer also contributes to (either build up a pot of cash or a final/average salary scheme).

Martin Lewis and Money Saving Expert’s top pension tips

1. There’s currently £27billion sitting in lost, old pensions. A surprising number of people lose track of old work pensions.

Martin pointed to an email from one follower, who said: “Thanks to you promoting lost pensions on your TV show, we contacted the [free] Pension Tracing Service and discovered a lost pension pot worth £82,000.”


2. Check you are eligible to buy back lost years of State Pension entitlement. Paying £800 to cover each year of missed National Insurance contributions could be worth £5,400 in retirement. Someone with 10 years of missed NI contributions could pay £8,200 yet expect to receive over £60,000 through 20 years or retirement.

A deadline to make take advantage of this regime lapses on April 1, 2025.


3. Remember that paying into a private or company pension means you save more than it costs you.

As a basic rate taxpayer someone putting £100 into a scheme from their pre-tax income will only lose £80 from their pay packet. A higher rate taxpayer putting in £100 will only lose £60 from their pay packet.

4. If you pay into a company pension, your firm must contribute too.

This is about auto-enrolment pensions, where all those age 22 to 66ish who earn £10,000+ a year automatically save into a pension, and their employer must put in a whack too. Opting out is almost always a bad idea, as you’re throwing away free cash.

Old couple with will, contract or document for retirement funding or compliance

If you save £100 into your private or company pension, it effectively comes from pre-tax income (Image: Getty)

5. Have you told your pension firm who should get the money if you die? Don’t accidentally leave it to your ex!

Fill out an expression of wishes (EOW, or ‘nomination’) form to tell your company and pension provider your preference. It is not binding, but is important & helps.


6. As a rough rule of thumb, take the age when you start putting money in your pension, halve it, and that’s the percentage of your salary to aim to put into your pension for the rest of your working life for a strong pension income.

So, someone starting paying in at 20 would put in 10 percent in total (including the employer’s contribution), while someone starting paying into their pension at 40 should look to be paying in 20 percent.


7. If you are under 22 or over 66 and earn under £10,000 you can usually force your employer to contribute to your pension.


8. Self-employed people can get the same tax-advantage as employees, but it works differently:

You automatically get 20 percent tax relief. So for every £80 you pay in, the Government adds £20 without you doing anything, so £100 is added to your pension.

9. Both with saving for and taking your pension, free guidance is available, online, via chat or on the phone, funded by a government levy on the finance industry.

Martin Lewis recommends MoneyHelper for those under 50 and Pension Wise for older people.

For full help, pay for independent financial advice who can advise on specific products and investment choices.

10. Consider deferring taking your state pension. The state pension is boosted by 5.8 percent for each year you defer, which could be worth an extra £660 a year.

hundreds of pounds every year.


11. Never take money out of your private pension for the first time without getting at the very least guidance. Getting it wrong can lead to a large and unnecessary tax bill running to tens of thousands of pounds.


12. State pensioner with total income under £235/wk (or couple under £350/wk) should check their eligibility for Pension Credit.

Currentlyh nearly one million pensioners are missing out on Pension Credit, which can be worth thousands of pounds a year.


13. Private pension holders can use their next egg to buy an income for life, known as an annuity. These deals are relatively good value now, but shop around and never just grab the one from your pension provider.

A few years ago every £100,000 of pension savings would get you not much more than £4,000/yr of income, in the same circumstances now it’d get nearly £6,500/yr. Though do get guidance/advice to ensure it’s right for you.


14. You don’t pay any inheritance tax on a pension.

If you die aged under 75, and have a money purchase pension (a pot of pension savings rather than a final salary type, even if it’s now converted into a drawdown), then your beneficiaries can usually take the money out tax-free.

If you’re over 75, then when they take it out it usually counts as additional income for tax purposes.

Calculator, hands and business man with finance, tax and budget work

If you save, your firm must contribute too. Don’t throw away a hidden pay rise (Image: Getty)

15. You can currently take your private pension money at age 55 (rising to 57 in 2028). Yet one big question is how long you’ll need it to last.

– Spend it all too soon, and you’ll have a poor retirement.
– Be overly cautious, especially when you first retire, and you’ll have a worse lifestyle at the time when you can most enjoy it.

Don’t underestimate your longevity – your health and genetics affect it, but your current age is the single most important factor. The government has a basic tool, the life expectancy calculator, as a start point.


16. If you are a woman aged 70+ you may be due £10,000s back due to errors in your state pension.
Hundreds of thousands of married or now divorced / widowed women on the ‘old’ state pension (those who hit state pension age before 6 April 6, 2016) are due big payments due to pension system errors, mainly as they didn’t get the cut of their husbands’ pensions due to them.


17. If you took time off to look after children, a state pension error could means you’re due thousands
This is about Home Responsibilities Protection (HRP) – a government system designed to protect the state pension for mainly mothers who chose to take time off work to look after their children or care for someone with a long-term medical condition/disability.

The government is writing to those affected, so if you get a letter, don’t ignore it.


18. Should you consolidate your private or company pensions? While it is easier to manage and keep track of one pension it is not always a winner.

Financial advisers are divided on the issue and each pension has different rules and perks, which means it is important to get indepdendent advice.


19. If you are on a final salary pension be careful cutting your hours before retiring.

The rules of some schemes mean people get a percentage of their salary in the period before retirement, so cutting working hours and pay could mean the pension is also reduced.



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