Are You Prepared for the Pension Contribution Increase?
The new rules surrounding auto-enrolment pensions stipulate that the minimum contribution into pensions is now 3%, up from 1% previously.
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.
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.
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.
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.
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.
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