Pensions contributions for Auto Enrolment are due to increase 6 April 2019, meaning you are likely to be at least £20 short on your next payday.
What is Auto Enrolment?
The Auto Enrolment was introduced by the government in 2012, the scheme was set up to ensure everyone has a private pension to add to their state pension.
Who is eligible?
Employees are eligible for Auto Enrolment if you earn between £6,136 and £50,000 per annum, your employer must enrol you upon your request. You will be automatically enrolled if you are 22 years old or above and earn at least £10,000 per annum.
What are the current minimum contribution requirements?
The current minimum total contribution for Auto Enrolment is 5% though this is set to increase to 8% on the 6 April 2019. You and your employer can choose to pay more, though the minimum total contribution should equate to 8%.
|Period||The minimum your
|Since 6 April 2018||2%||3%||5%|
|From 6 April 2019||3%||5%||8%|
What impact will the increased contributions have?
If you are an employer, it means you will be paying an additional 1% per employee who meets the above criteria.
As an employee, it means you are paying out an additional 2%. Meaning, for someone working 30 hours a week on the current minimum wage of £7.70 it means deductions per annum will increase from £176.28 to £293.80 per annum. Please note the contribution percentage is calculated from any earnings over £6,136.
Why you should opt in for Auto Enrolment?
Increased contributions to a pension will mean you have more money when you retire. Auto Enrolment is a form of private pension that you will be able to draw out alongside the state pension at retirement age. The current state pension is £164.35 per week, which works out to be £8,546 per annum. This is much less than what most people will need to live off when they retire.
Tax is calculated after your pension contributions are made, meaning you pay less tax on your remaining income. When you draw money from your pension pot, 25% is tax-free. You only pay income tax on the remaining 75%. The amount of income tax you pay will vary depending on the amount you draw down.
When you pay in your employer pays in, meaning you are saving nearly twice as much money for your pension. For example for a defined contribution scheme for every £40 you put in your employer will add £30, and you get £10 worth of tax relief. Meaning the total amount deposited into your pension is £80.