Employees’ pension pots will get a boost this month as new rates come into effect. Minimum contributions are rising to eight percent, with five percent being paid in by staff and the remaining three percent topped up by employers. The changes mean wages will be squeezed as people see on average £30 less in their pay packet a month. But the long-term plan is to ensure people have more money saved once they retire.
Under the old scheme, minimum contributions were set at five percent made up of three percent from staff and two percent from employers.
The changes come into effect from Saturday, April 6, the first day of the 2019-20 tax year.
This means workers will see the difference in this month’s pay packet.
More than ten million people have already been enrolled in the workplace pension scheme.
Automatic enrolment was introduced in 2012 by the Government over fears many people were missing out on their company’s pension scheme.
The changes mean a 22-year-old who starts paying into their pension now could be better off by £55,000 when it comes to retiring.
Yvonne Braun, director of long-term savings policy at the Association of British Insurers (ABI) said: “Automatic enrolment has transformed pension saving, bringing millions more workers into the savings habit.
“Contributions from your employer are like a deferred salary increase, helping towards a more financially secure retirement.
“Pension saving can often seem daunting, especially when you cannot touch the money for some years, but the earlier you start saving, the more you will have in retirement.”
Employees who do not want to be making pension contributions can opt out of the scheme after they have been automatically enrolled.
What other tax changes are coming into effect?
The state pension is rising on April 6 by 2.6 percent, meaning the average amount people claim a week is now £129.20.
In addition, the tax-free personal allowance increases to £12,500 from £11,850.
This means an extra £130 for the typical basic rate taxpayer – no earnings below this threshold are subject to tax.
Higher rate taxpayers will also be better off as the high rate threshold has been lifted to £50,000, giving them an extra £495.
More than 30 million people are expected to be better off under the personal allowance rise and higher rate threshold.