What does the increase in contributions to workplace pensions from 6 April 2019 mean for me?
Posted on 14th March 2019 at 18:29
If you are a member of a workplace pension arrangement with minimum contributions your retirement savings pot is likely to grow faster from 6 April 2019 because the contribution paid by your employer and you will increase. Read more to see what this means for you
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If you are aged over 22 and earning at least £10,000 a year you will have been auto enrolled into a workplace pension. The government sets minimum contributions to such arrangements and these are increasing from 6 April 2019.
Assuming your employer set up an arrangement with the minimum contribution then the cost to you would be HALF the total amount being saved into your pot each month. The detail of the impact of this for someone earning £24,144 a year or £2,012 a month is as follows:-
The minimum employer contribution paid to your retirement savings pot on your behalf is 3% of qualifying band earnings. This is 3% of your band earnings between £6,144 per annum (or £512 a month) and £50,004 per annum (or £4,167 per month.) Your contributions will be 5% of Band Earnings. You will benefit from tax relief paid by the government.
If you were an employee earning £24,144 a year, £2,012 a month then your Band Earnings from 6 April 2019 would be £18,000 a year, £1,500 per month
2012 – 512 = 1500
From 6 April 2019 the employer would pay £45.00 each month into your retirement savings pot
3% of £1500 = £45.00
You would save £60.00 each month into your retirement savings pot
5% of £1,500 = £75.00
Less tax relief
20% of £75.00 = £15.00
Net contribution deducted from your net pay £75.00 - £15.00 = £60.00
Your workplace pension provider would reclaim the tax relief of £15.00 each month from the government and add this to your pot.
The total amount saved to your retirement savings pot from 6 April 2019 would be
£120.00 each month made up as follows: -
Tax Relief 15.00
The cost to you would be HALF the total amount being saved into your pot each month
The net cost to you being deducted from your net take home pay each month would increase to £60 per month in total from 6 April 2019 but the total amount being saved for you in your retirement savings pot would be twice that at £120 per month ( £1,440 each year ) .
If you have not been autoenrolled into a workplace pension you can ask to join and providing your earnings are more than £6,144 a year your employer will have to contribute to your retirement savings pot.
If you choose to opt out of the workplace pension arrangement and not save for retirement then you would lose the contribution from the employer as well as the tax relief from the government.
Anyone who is saving for retirement and is a higher rate taxpayer can claim additional tax relief through the self assessment process.
The impact of the increase for you may be different if your employer provides a workplace pension arrangement with contributions which are more than the minimum required.
Your retirement savings pot belongs to you as an individual and can be accessed from age 55.
If you have any questions or would like a free no obligation informal chat to answer your questions about retirement savings then contact Elaine Tarver at firstname.lastname@example.org or 07712751336. If you would like to receive tips help and information demystifying pensions direct to your inbox sign up here
Tagged as: april 2019, Auto Enrolment, Band Earnings, Contribution increase, employee, Retirement Savings
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