As of the 6th April, the total minimum contribution to workplaceis set to increase to 5% from 2%, and here is everything you need to know.
Last year, the introduction for auto-enrolment came to an end, and now it is the law for all employers to provide a workplacefor all employees, who are to remain enrolled unless they opt out on their own accord.
On top of this, there are now rules on the minimum amount of pension contributions that your employer and the government are to pay into. Part of this scheme is for these minimums to slowly incline. This is set to happen in April.
Contributions to more than Double
There is currently a total minimum pension contribution of 2% of your annual salary. This is 1% of your own contribution and 1% of your employers. You have the option of paying more into your pension, which will increase your benefits when it is time for, but it is the law to pay in the minimum.
From the 6th April, the total minimum contribution is set to increase to 5%, with your employer having to contribute at least 2%. If your employer pays in only the bare minimum, you must then pay the other 3% from your salary. However, when you include tax relief, you are actually paying in 20% less than that 3% total.
If we were to look at the average salary of £27,000, those annual pension contributions could jump from £169 to £517. It would be a good idea to talk to your employee about what they will be paying into your pension after the rule change in order to see how much of your own salary will be taken as a contribution to your pension.
Is that the last rise?
Minimum contributions are set to increase up to a total of 8% in 2019, with your employer having to contribute a minimum of 3% of that. So with each increase, the amount you will pay in will increase higher than the employers contribution minimum.
With that in mind, if the employer of someone earning £27,000 were to only contribute the absolute minimum, the employee would see their own pension contributions shoot up from the current £169 a year to £1080 as of April 2019.
You may find yourself slightly worse off as of next month, as that’s an extra £29 a month for someone earning the average salary, but all this is going towards a better retirement in the future. Auto-enrolment is there to get everyone ready for retirement and to leave them better off when the time comes. Without a pension, you will be reliant on your personal savings as well as the state pension when you stop working, and that is nowhere near enough to get by. The more you contribute to the workplace pension, the better off you will be in retirement.
It may seem confusing, and you may feel like retirement is unattainable, but with the right team to support you and help you put the right plan in place, you will have a much better time of sitting comfortably when the time for retirement comes round. To find out more about how you can put in more for your pension contribution, get in touch with one of the professionals attoday.