If you’re one of the ten million people paying into an auto-enrolment pension, your contributions will rise from 1 April. That is good news for two reasons.
First, it means more money will be paid into your pension pot from both you and your employer.
Second, other changes mean the increase will often not reduce your take-home pay.
Every employer, however small, now has to provide a pension at work for its employees. Anyone earning over £10,000 a year has to be automatically enrolled into that pension. Both employer and employee pay into the pension and those contributions are rising from April. It is the final stage of the introduction of auto-enrolment, which began in 2012.
Before April, employers paid two per cent of your pay into a pension and employees paid three per cent. Those are the officially quoted numbers but the percentage applies only to a band of your earnings starting at just over £6,000 a year. So the actual percentage of all your pay is lower: around 1.4 per cent, and 2.1 per cent for someone on £20,000 a year. It’s even less if you are on minimum wage.
From 1 April those amounts increase to a three per cent contribution from the employer, and five per cent from you. But again the actual amounts are less: around two per cent and 3.5 per cent respectively of your total pay if you earn £20,000 a year.
Although more of your pay will go into your pension pot, the actual amount you take home may well rise. There are two reasons for that.
First, the level at which income tax and National Insurance contributions begins goes up from April. That will save people currently on basic rate tax £155 in tax and National Insurance contributions.
Second, pay is rising. The minimum and living wage rates are set to increase by almost five per cent in April and wages in general are rising by 3.4 per cent a year. Even a one per cent rise will outweigh any increase in auto-enrolment pension contributions for anyone on average pay or below. They will be left with more take-home pay in 2019/20 than they had in 2018/19 even after the extra amounts have been put into their pension. So you could be no worse off and earning more pension – it’s a win-win situation.