Pensions - Articles - Increase in AE contributions cushioned by tax changes

Savers will now be putting away more in their pension pots as part of an increase in auto enrolment minimum contributions from 5% of qualifying earnings to 8%. This means employees will be saving 5% of their income, up from 3%, while their employer will now be contributing 3%, up from 2%.

 While this will reduce take home pay by £302 for those earning £25,000, more than half of that (£159) will be offset by a range of tax changes coming into effect from 6 April.

 • National Insurance – The starting point will rise from £8,424 per year to £8,632 which will put another £25 per year into pay packets
 • Income Tax Personal Allowance – This will jump from £11,850 per year to £12,500 which will put another £130 per year into pay packets
 • Qualifying Earnings lower limit – The starting point for pension contributions will increase from £6,032 per year to £6,136 which will put another £4 per year into pay packets
 = £159

 This means almost 53% of the extra pension contributions will be paid for by other tax changes coming into force by the government.

 Meanwhile those on the National Living Wage – a full-time salary of £17,000 – will receive a boost in their next pay packet due to an increase in the minimum wage this week.

 The rise for workers aged 25 and over from £7.83 an hour to £8.21 will see them receive an extra £537 a year. Together with the tax changes they will pocket an additional £696 a year while their extra pensions contributions will reduce their annual take home pay by only £175.

 Adrian Boulding, Director of Policy at NOW: Pensions, comments: “Thanks to these tax changes, when people look at the bottom right hand side of their pay slip in April, they are much less likely to be worried by the increase to their pension contributions.

 “By cushioning the impact, hopefully people will continue to save and resist the siren call of spending. Putting away a little bit more each month will, together with the increased employer contribution, make a big difference to savers’ future retirement prospects.”

Back to Index

Similar News to this Story

HMRC admits it has not got a clue how many are facing fines
A new FOI response obtained by Royal London has revealed that HMRC simply do not know how many people they are fining each year over breaching rules r
75 percent of pension schemes want more investment in data
XPS Pensions Group (“XPS”) reveal 75% of those responsible for pension schemes believe more investment is needed to improve member data, according to
Hymans Robertson comment on GMP Equalisation call to action
Commenting on the GMP Equalisation Working Group’s initial guidance for good practice in GMP equalisation, Matt Davis, Head of GMP Equalisation at Hym

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS


Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.