Pension payments increase for employers and employees

Auto-enrolment pensions will further increase from 3% to 5% for employee contributions and from 2% to 3% for employers.

Although potentially this means a higher retirement income for employees, it could spell trouble for some as it may mean a decrease in take-home pay.

In the tax year 2017/2018 the auto-enrolment contribution rate was an equal 1% for the employer and 1% for the employee. This increased to 3% for the employee and 2% for the employer in the tax year 2018/2019. The next tax year will see the total auto enrolment contribution rates rocket to 8%.

The government has been planning this move for a while, as it claims rates needs to rise to meet the costs of a decent retirement.

Employees now have three options:

  • Opting down: Employers aren’t required to make a contribution but tax relief is still available
  • Pay the new higher rate: Increasing to 8% total next tax year
  • Opt-out: Choose not to pay into the pension

For example, an employee with a salary of £27,000 who agrees to pay the new rate next year, will see their pension contributions increase from £810 per year to £1350 per year, while the employer contribution increases from £540 to £810 per year.

Need some expert advice on auto enrolment pension contributions? Contact Alison via email for more information.

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