Martin Lewis says 'ask to join' after Rachel Reeves rule change

 Martin Lewis has urged anyone in employment to take immediate action or risk losing out on a crucial benefit. Speaking on his ITV programme, the personal finance expert issued the warning following government changes that have left many people uncertain.

An audience member, Keith, questioned whether it remained worthwhile to contribute to their workplace scheme or establish a private pension. This came after the Government targeted the savings from salary sacrifice that millions of employees currently utilise to reduce the cost of saving for their retirement.

At her last budget Chancellor Rachel Reeves announced that from April 2029, both employer and employee National Insurance Contributions (NICs) will apply to salary-sacrificed pension contributions above £2,000 per year. This change eliminates the long-standing NIC exemption that made salary sacrifice amongst the most efficient methods to save for retirement, according to accountancy firm Grant Thornton. Mr Lewis made it abundantly clear, however, that workplace pensions mean people receive considerably more from their employers - and that this represents a 'super power' of pensions.

He said: "This is the basic situation. I didn't mention earlier because it complicates it, but when you're putting all that money into your pension, into your workplace pension, we're focused on here. You will still pay 8% national insurance of basic rate taxpayer. So you get put your £100 in, but you're still paying 8% national insurance. And that goes 2% at the higher rate if you're in that level and then at the top rate under salary sacrifice.

"Your employer has to offer it. If they don't offer it, you can't do it. What effectively happens is your employer says, 'We will pay your pension contributions for you, but we will take it off your salary.' So you're paying in £200 a month. We'll reduce your salary by £200 a month that the net effect is exactly the same for you. But if they do that, this is what happens. There's no national insurance. So while it may not be in your pension, you effectively get a national insurance gain.

"So in a way of thinking about it is you pay £80 from your pay packet, you're now getting £168 or £162 at the higher or top rate. So that's the benefit of salary sacrifice. And some employers will also give you their national insurance savings too, which can work well. So what's changing that Keith talked about? Here we are. It's the kryptonite for this particular superpower. In the budget 2025, it was announced that from the 6th of April 2029, salary sacrifice national insurance relief will be capped on the first £2,000 a year employee pension contribution.

"So for someone at the standard auto-enrollment rates above £46,000 in earnings. You will no longer get a salary sacrifice gain. You'll still get it below that, but you will only get it up to that point. But remember, it's only on the national insurance game, Keith. You're still going to get your tax gain. You're still going to get your auto-enrollment payment. You're still going to get some of the super duper gain because it's only above the threshold that you lose it.", reports the Liverpool Echo.

"Massively overegged. People are talking about ending and putting money into workplace pensions because of this. It's just a bit the end, isn't it? It's just a little bit on top. Keep going as you were." A caller asked whether they would be better off opting out of their workplace pension and starting a private one instead. Martin was absolutely unequivocal on that. He said: "Let me give you the short answer. No. This is about auto-enrolment. This is for employees only. This is you in your workplace pension, assuming it's that type of pension.

"So, generally most people who are employees, if you're putting into your pension automatically, your employer has to add money to at the basic level. That means for the £100 you put in that only cost you £80, your employer has to add £60 on top. So, as a basic 20% rate taxpayer, it only cost you £80.

"You're getting £160 worth of investment. In a private pension, you get £100 worth of investment. So, there's a massive lift to you, assuming you're within your limits and you're not going over the maximum you can put in your workplace pension of opting out of that workplace pension. And the same happens at each high-rate tax level, the £60 is added on top."

Who is autoenrolled?

Mr Lewis clarified: "Well, if you earn over £10,000 a year and you're aged 22 up to state pension age, currently 66, you will automatically be put into your employer's pension. You don't have to do anything. You have a choice to go out of it. But if you do nothing, you are put into it. Now, if you're opted in, the minimum contribution is 8% of your income on earnings up to £50,270

"Employers can continue to do it if you earn more, but that's the minimum that they have to do because they have to match three percentage points of this. So, they're doing three, you're doing eight. So, it's those 3 percentage points that you would be giving away if you opted out of your workplace pension. And in fact, some employers will give you more than that. And this is so important. It's actually worth noting that while that's when you're opted in, look at all these other categories.

"If you earn between just over £6,000 up to 10 grand, and if you're age 16 to 21 and earn over 10 grand, or age state pension age to 74 and earn over 10 grand, you have a right to opt in. And if you opt in, they must still do the matching contributions onto this basis. So if you're a younger person living at home and you got a bit of spare cash, even if you're on a low income or if you're on a little bit more, it's a great time to put money in your pension because your employer's going to match it. If you're working once you've got to state pension age, well, you might want a little bit more to be putting in because you're getting all those benefits of that super duper power. We've done super. This is super duper power."

Grant Thornton noted that at present, both employees and employers benefit from full National Insurance Contributions relief on any amount directed into pension schemes (subject to annual allowance and National Minimum Wage restrictions).

From April 2029, based on current NIC rates and thresholds: This measure is anticipated to generate £4.7 billion in 2029-30 and £2.6 billion in 2030-31, according to the Office for Budget Responsibility (OBR), though given the lengthy timeframe before implementation, some analysts have cast doubt on these projections, arguing that employers may adjust their approach now to mitigate some of the extra expenses.