The new rules surrounding auto-enrolment pensions stipulate that the minimum contribution into pensions is now 3%, up from 1% previously.
Rebecca Goldring of Blick Rothenberg asserts that:
"For many, this increase will feel like a harsh jolt."
How will the pension rise affect you?
An increase in pension contributions will make it more likely that more people will have a pension that more closely matches their needs in retirement.
Why are contributions going up?
The government intended to increase the level of contributions (initially 1% employer and 1% employee) under auto-enrolment from the outset. In the 2019/2020 tax year, contributions will rise again, to 5% and 3% for the employer and employee respectively.
How much more will I have to pay?
For a worker who earns the UK average of £27,000, the increase will amount to an extra £350 over the course of the year.
What is the benefit to my eventual pension?
It's estimated that an annual income of £18,000 could be achieved by a worker that pays the specified amount in to an auto-enrolment pension from the age of 25, assuming that auto-enrolment pensions are calculated on 100% of the worker's salary.
If contributions start from age 35 under the same scenario, the final income in retirement is estimated at £11,726.
Can I opt out of the increases?
There are three possible options:
- Pay in as specified
- Opt out completely
- Continue to pay in at the previous rate.
Be aware however, that should you continue to pay in at the previous rate or opt out completely, the amount you can expect to receive as a pension in retirement could be seriously affected.
Contact Westminster Wealth Management today and one of our skilled advisers can construct a financial plan for you that will enable you to meet your financial goals.
Information is based on our current understanding of taxation legislation and regulations which is subject to change.
A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.
Pension contribution increases a 'harsh jolt' for millions