What does the auto-enrolment increase mean for you?

From 6 April 2019, minimum contributions from employers and staff increase. This applies to all employers with staff in a pension scheme for automatic enrolment. If you aren’t enrolled in an automatic pension scheme or you and your employer are already paying above the increased amounts, this increase doesn’t apply to you.

The old minimum rates were 2% of your pre-tax salary from your employer and 3% of your own pre-tax salary, a total of 5% of salary. This has risen to 3% from employers and 5% from staff, totalling 8% of overall salary. Your employer may already be contributing more than the minimum, meaning your own contributions won’t have to be upped so much to make the minimum 8% contribution.

While this will mean slightly less take-home pay, you are effectively getting a pay rise as your employer will be giving you more money than you would otherwise have got. This said, you won’t be able to use this money until you are 55, in most cases.

By doing nothing, you’ll automatically be saving towards your pension. You’ll be making a long-term decision to improve your financial security in later life without actually doing a thing. This is great for those of us guilty of sacrificing the future for more money in the short term. Usually, remaining in such schemes is the best financial decision as many of us face a future where the state pension won’t be enough to live off alone.

Of course, you can opt out…

In most cases, it makes sense not to opt out of the auto-enrolment scheme. However, there can be exceptions. If you already have a large pension, there’s a risk that auto-enrolment could push you over the lifetime allowance, which currently stands at £1,055,000 as of April 2019. If this sounds like it could affect you in this way, it’s best to talk to an independent financial adviser to decide what the best course of action is for you.

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