The Money Saving Expert called the it a “superpower” as you get tax relief
Martin Lewis has shared a pension ‘loophole’ that could ‘double your money’ during a segment on his ITV programme.
During his return to The Martin Lewis Money Show Live for its Summer Special, the 52-year-old turned his attention to the workplace pensions system.
Specifically, he spoke on how your pension contributions aren’t taxed at the point of contribution.
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Martin explained: “The most important thing to remember is the money you put into your pension is from pre-tax salary. So this is the superpower. You get tax relief.
“So as a basic 20% rate taxpayer, you’re putting £100 in, but of course when you get it in your pay packet 20% is being taken off. So to put £100 in only costs you £80. So you’re getting £100 investment for the cost of £80.”
The finance guru said that for higher-rate taxpayers, the gain is even greater because you get a £100 investment for just £60 because you don’t lose £40 to tax.
For a 45% rate taxpayer, it costs you just £55 to get £100 invested into your pension tax-free.
Additionally, for every £100 you put in, your employer will add in matched contributions.
He continued: “So for a basic rate taxpayer, that means you, if you’re putting in £80, you’re getting £160, double the money going into your investment, double your money from what’s coming out your pay packet.
“If you’re a higher rate taxpayer, £60 becomes £160, if you’re a top rate taxpayer – and some people might say it’s unjust they’re the ones that get the biggest but anyway – £55 is nearly being trebled to £160 going into your investments.
“That is just completely unbeatable. So in a way if you were not to do it, you’re giving up a payrise.”
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