Automatic enrolment of employees into workplace pensions has been much more of a success story than predicted. According to The Pensions Regulator, over the last three years, more than 8.5 million people have begun saving for their retirement and almost 800,000 employers have successfully complied with their automatic enrolment duties. It’s important to start saving for your retirement early.
Nicola Roby at CHW Accountants in Bolton explains further and highlights some imminent changes which you need to be aware of.
A key factor which helped the initial acceptance of auto-enrolment was the low level of employee contributions. Now the regime is moving on to the next, more challenging stage. From 6 April 2018 there will be an increase in minimum contributions for both employers and employees.
Currently, the total minimum contribution required is just 2% of band earnings. These are earnings between £5,876 and £45,000 in 2017/18.
Of this, the employer must pay at least 1%. So the typical minimum 1% contribution by an employee earning £25,000 a year currently works out at £12.75 a month after basic rate tax relief.
From 6 April 2018 the minimum total contribution will rise to 5%. The employer must pay at least 2% of this total which means that most automatically enrolled employees will see their contribution rate triple – from 1% to 3%.
Further, in April 2019, there will be another 3% increase in the minimum contribution, leaving the employer with a payment of 3% and most employees facing a further increase in contributions to 5%.
Based on this year’s rates that £12.75 a month in March 2017 will have increased to £63.75 a month by May 2019.
Nicola at CHW Accountants in Bolton says, “We would advise employers to alert their employees to their contribution increase before it takes effect. Also, budget for your own contribution increases in 2018/19 and again in 2019/20.”
If you need advice about this or any other issue relating to your finances contact Nicola Roby at Accountants in Bolton on 01204 414243 or via our contact us page.
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