Pension contribution increases: What does it mean for me?

Many people will see their pension pot grow due to changes in workplace pensions that mean employers and employees contribute more after 6 April 2019.

Under the changes, the minimum contribution made by employees rises from 3% to 5% and employers’ contributions also rise from 2% to 3%.

This table shows the changes for employers and employees:

Employer minimum contributionEmployee contributionTotal minimum contribution
Before 6 April 20192%3%5%
New rate3%5%8%

Who does this apply to?

The change affects any employee already on an automatic enrolment pension scheme with their employer in the UK.

What does this mean for me?

Unless you opt out, you’ll be paying more into your pension, and your take-home income will be reduced. If you’re happy to see 5% of your salary go into your pension (plus a 3% contribution from your employer), you don’t need to do anything. When you come to retire, it should leave your pension pot looking a lot healthier.

If you don’t want your contribution to increase, you can opt out, or pay at the old rate, but it’s worth knowing the implications.

We’ve set out the options and implications below, and we’ve included tables which help explain the impact on your pay packet on a weekly, monthly and yearly basis. This should help you decide the best course of action for you.

Do I have to do anything?

If you’re happy with the changes you don’t have to do anything. Everyone affected has three options:

  1. Do nothing and continue paying in at the new, higher rate.
  2. Opt out of the pension completely.
  3. Opt to continue paying in at the old rate of 3%.

The last option is called “opting down”. Choosing this option will mean your employer is no longer obliged to make any contribution at all.

Should I opt out?

If you’re thinking of opting out of your workplace pension scheme, think twice!

Opting out is like taking a voluntary pay cut. You’ll miss out on tax relief, as well as your employer’s contributions.

If you think you’ll struggle to handle the reduction in your take-home pay, you may:

  • Be entitled to tax credits or an increase in the amount of tax credits you get (although you may not get this until the next tax year).
  • Be entitled to an income-related benefit or an increase in the amount of benefit you get.
  • Be able to reduce the amount of student loan repayments you need to make.

What will the changes mean for my pension?

Take a look at this chart below. It shows the huge difference between staying in and opting out. The figures are based on the UK’s average salary of £29,669. We’ve included a table at the end of the page which has the numbers in more detail, across a wider range of salaries.

Why are contributions going up anyway?

Auto-enrolment pensions began with modest contributions: 1% from the employee, including tax relief, and 1% from the employer.

These then rose in April 2018, from 1% to 3% for employees, and from 1% to 2% for employers.

For everyone to be able to afford a decent retirement, the government has always said that rates need to rise, which is the reason for the 2019 change.

How much more you’ll pay

How much more you will have in your pension

The difference between opting out and staying in

“Increasing the minimum workplace pension contribution for both employees and employers is a very sensible move and one that will help tackle the looming pension problems that the UK is facing. Finder’s research found that only around a quarter of Brits (28%) think that they’re on track to retire with an adequate amount, so it is vital that this issue is addressed now before it’s too late.

“Although you will pay more out of your pay packet from April 6th onwards, the increase is relatively small and your employer also has to contribute more to your pension. People also automatically receive a 20 percent tax break in their pension, so it really does make sense to stay in an automatic workplace pension.

“As an example, someone earning the UK average salary (£29,669) will pay an extra £7.27 into their pension each week, but the combination of your employer having to pay more and a 20 per cent tax break will see an extra £13.64 go into your pension every week. Over a 30 year period this extra amount, plus the interest your pension earns, will see your pension be worth £92,057. This is almost £64,000 more than if you opted out of your workplace pension and kept the cash.”

Jon Ostler, CEO of Finder UK

You can work out your specific contributions using the Money Advice Service’s handy contributions calculator. You can also see how much your employer will pay in using the UK government’s employer contribution calculator.

Learn about the pensions basics with our simple guide

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