Steve Cook, independent financial adviser IFA in St Albans reviews the increase in employee and employer pension contribution rates.
Until now employees have been paying just 1% of their qualifying wages into their pensions. This is made up of 0.8% from the worker, plus 0.2% in tax relief from the government. However, in April 2018 this will rise to a minimum of 3%, and in April 2019, the employee contribution rate will go up to 5%.
‘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 downside option is if you take it you still have to contribute 1% of qualifying earnings into your pension but your employer is not obliged to match your contribution. If you did this you would be losing out on any employer contributions into your pension and we would recommend anyone considering this thinks very carefully about the long-term impact on their total retirement income. Having your employer match your contribution is a great benefit and doesn’t cost you anything. Remember the cumulative impact of not saving enough into a pension early in your working life could affect the type of lifestyle you can achieve when you retire.’
For more information read: Steve Cook, independent financial adviser St Albans - Is your workplace pension set up correctly?