Martin Lewis, Money Saving Expert, is well-known for providing assistance to Britons on a wide range of financial issues. Tonight, he provided a useful breakdown of the benefits of pension saving following a question from the member of his live audience – dubbed the Wallet Watchers. One gentleman told Martin he currently had a stocks and shares ISA, a popular investment method, however, was weighing up the benefits between this vehicle and a pension.
Thankfully, Martin was on hand to offer his guidance on what option he felt would be best, not only for his audience member, but potentially for all Britons.
He explained: “If you’re an employee and you put into your pension, auto-enrolment means you will get matching contributions from your employer.
“Now we could have a technical discussion here about the tax benefits between an ISA and a pension.
“One is tax benefits on the way in, and the other provides tax benefits on the way out.
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However, for Martin auto-enrolment is a tool which can be harnessed to drive forward a person’s retirement.
In this sense, it could end up working out better in the long-term when compared to a stocks and shares ISA – particularly due to the different components which comprise how the savings are built up.
He continued: “If you have the ability to put into your pension, and your employer should be contributing towards it, you should be doing it as your primary objective.
“It won’t give you flexibility as you can’t access the money.
“With the ISA, you could take the money out when you’re younger.
“But, for your retirement, you’re young now, the earlier you start putting money into your pension, you have time for it to compound, time for it to grow.
“And I think it will give you a better retirement later. So, if it’s a workplace pension, I’d put the money in there.”
People will be automatically enrolled into a workplace pension if the following criteria apply:
- They work in the UK (including seafarers residing in the UK)
- They are not already in a suitable workplace pension scheme
- They are at least 22 years old, but under state pension age
- They earn more than £10,000 a year for the tax year 2021/22.
If a person earns less than £10,000, but above £6,240 in the 2021/22 tax year, their employer does not have to automatically enrol them into a scheme.
However, they can still ask to join, and as the Government-backed website Money Helper adds, an employer cannot refuse, and must make contributions for the individual concerned.
Britons usually have to contribute a minimum of five percent – including tax relief – while employers have a minimum contribution of three percent.
Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 13 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip