What Increases in Pension Contributions Can I Expect?
Auto Enrolment minimum contribution payments increased substantially from 1% to 3% last month. And there are further increases set for next April 2019, where contributions will rocket to 5%. But what does that mean to the average worker?
What Will The Increases Mean To My Pay Packet?
On the face of it, the figures look scary. If you earn the average wage of £25,000 per annum, your pre-tax contributions will increase from £250 per year to £750. That’s over a weeks’ worth of pay in deductions. By next April, that figure will be even more – a staggering £1250 per year.
How Will It Benefit Me in the Long-term?
For those that are struggling to make ends meet, it could be a step too far in the short term. However, in the long term, it’s a nice pay increase. With employers also seeing an increase in the contributions they have to pay, it could be a nice boost to your pension pot, even if you don’t see the benefit right now.
|Date||Employer Minimum Contribution||Staff Minimum Contribution||Government Tax Relief||Total Contributions|
|Currently||1%||0.8%||0.2%||2% of Earnings|
|From April 2018||2%||2.4%||0.6%||5% of Earnings|
|From April 2019||3%||4%||1%||8% of Earnings|
What If I Can’t Afford the Increase?
For those that can’t afford to pay more, there are a couple of options open to them.
Auto-enrolment isn’t compulsory so you can opt out altogether. However, if you do that, you will miss out on the huge tax benefits and free money from your employer.
Keep contributions at the lower 1%. With this option employers aren’t required to contribute to your pension at all. So even if you can negotiate with your employer and get them to pay the lower rate, it will ultimately lead to a substantially smaller retirement fund.
Andrew Colyer-Worsell, the Senior Pension adviser from Fix My Pension, said “If you can stretch to the extra contributions, it’s worth doing when you consider the free money and tax relief benefits. Even if your pension pot isn’t high on your agenda now, opting out can be the difference between a comfortable retirement and a future of struggle.”
Further reading: What Is Auto Enrolment?
More on Auto Enrolment increases from The Pensions Regulator