Workplace pension contributions to rise
If you make auto-enrolment contributions to a workplace pension scheme, it’s likely that you’ll notice a change in your pay packet this month.
That’s because, from April 6th, the minimum contribution levels are changing, as the government encourages us all to save more for retirement.
Gross contributions were set at a 1% minimum for employees and 1% for employers until April 2018, when they will increase. The new level is a 3% minimum for employees and 2% for employers – and these rates will jump to 5% and 3% respectively in April 2019.
As such, there will be increased deductions from your salary, which will have an impact on the amounts you take home every month. However, it is important to note that you qualify for tax relief for pension deductions, which will make up part of the total contribution, as shown in the examples below.
|
Total Contribution Required |
Minimum Employer Contribution | Employee Contribution |
Tax Relief |
|
|
October 2012 – March 2018 |
2% | 1% | 0.8% | 0.2% |
|
April 2018 – March 2019 |
5% |
2% | 2.4% |
0.6% |
| April 2019 onwards | 8% | 3% | 4% |
1% |
For instance, if you contribute £24 from your salary, you’ll get tax relief of £6 (on the standard Income Tax rate), as well as employer contribution of £20. That means £50 will go into your pension.
Over the coming month, you should be notified of these changes by your employer. If you’re concerned about the impact these will have on your income, it is possible to opt-out of your workplace pension by speaking to your HR department. However, if you are unsure you should seek professional financial advice before making this decision.
As Dee Myhill, Auto Enrolment Consultant at Alan Boswell Financial Planners explains: “The limits have been increased to ensure that the population has sufficient funds when they come to retire. The 2018/19 State Pension is a maximum of £8,546.20 a year, which is unlikely to be enough to live on.
The limits have been increased to ensure that the population has sufficient funds when they come to retire
“With an ageing population and a shrinking birth rate, this situation is likely to be exacerbated for future generations. Auto-enrolment helps to ensure you have more saved for retirement than just your State Pension.”
If you would like to find out more about auto-enrolment pensions, do not hesitate to get in touch.
Please note, the value of an investment and any income from it can go down as well as up and you might not get back the original amount invested. The past is not a guide to the future.
The value of tax benefits depends on your individual circumstances and the laws concerning these can change.
