Auto-enrolment increase to hit take-home pay
UK workers are set to experience a “harsh jolt” to their incomes this month as minimum pension contributions triple. That is the warning from a London-based firm of accountants.
As of the new tax year, the minimum rate for paying into auto-enrolment pensions will rise from one per cent to three per cent. This means workers will now be paying an extra two per cent of their pay packet into the workplace pension schemes.
Rebecca Goldring, a tax manager at Blick Rothenberg, said: “The increase in monthly auto-enrolment pension contributions may result in a decrease in take-home pay for some workers. For many, this increase will feel like a harsh jolt.”
This claim has been questioned by other financial experts, who have said that the increased contributions are both affordable and necessary for a higher income in retirement.
A senior pension analyst at a leading investment service said: “Workers can now look forward to retirement with more confidence.
“Without this jump in contributions, retirement would be unaffordable for many, and an entire lifetime spent working could become the reality.”
The Government implemented the rise so that workers have a better opportunity of affording a decent retirement.
The minimum contribution rate is also increasing for employers, who will now have to pay at least two per cent into an employee’s pension pot. The rates will rise again in April 2019, when minimum employee contributions go up to five per cent and employers’ rise to three.
Any worker not wishing to pay the increase is able to continue paying in at the old rate or opt out of the auto-enrolment scheme altogether. Choosing the former option would mean the employer would no longer have to pay contributions.