From 6th April 2019 the minimum contributions that employers and their workforce pay into an automatic enrolment workplace pension scheme will increase. This is also known as phasing.
The amount payable as a total between the employer and employee will rise from 5% to 8% of earnings, with the employer having to contribute at least 3% with the individual worker contributing 5%. The amount of pension contributions an individual pays is usually based on qualifying earnings or pensionable earnings but it depends on how your pension scheme is set up.
Steve Cook, Director and independent financial adviser, Lonsdale Services, St Albans, Hertfordshire said:
‘All employers with workers in a pension scheme for automatic enrolment must take action to make sure at least the minimum amounts are being paid into their pension scheme and the employee must make up the difference. If the employer decides to cover the total minimum needed then the employees won’t have to pay anything. This applies to you whether you set up a pension scheme for automatic enrolment or you decided to use an existing scheme. It is worth checking your scheme documents or speak to your pension provider to confirm what is in place for your automatic enrolment pension scheme.'
‘Employers need to be aware of the pension contribution increases and remind their workforce as it affects their net pay. Employees also need to consider their options. There are only two options if you are working and do not want to pay the increased auto-enrolment contributions. You could opt out of the pension scheme altogether and stop making contributions or you can ‘opt down.’ However, the problem with the ‘opt down’ option is you still have to contribute a percentage of qualifying earnings into your pension, but your employer is not obliged to match your contribution. This would result in you missing out on any employer contributions into your pension. We would recommend any employee thinks carefully about the long-term impact on their total retirement income of not contributing into their workplace pension scheme. Having your employer contribute 3% to your pension is a really good benefit and doesn’t cost you anything. It is worth remembering that the cumulative impact of not saving enough for your retirement during your working life could impact the type of lifestyle you can achieve when you retire. We recommend any employee starts saving into a workplace pension as soon as possible as the earlier you save for your retirement the better chance you have of achieving your financial goals in retirement. ’
For more information read: Steve Cook, independent financial adviser St Albans - Is your workplace pension set up correctly?