For employees who have opted-in to an Auto Enrolment pension they and their employers will be paying into them at higher levels from this month.
April 2018 sees the contribution rates rise from 1% paid by the employee and 1% paid by the employer to 3% paid by the employee and 2% paid by the employer. These are the minimum contribution levels.
This increase has led to concerns that there could be a sharp rise in people opting-out of their auto enrolment pensions as the increase impacts their take-home pay. But this is not the whole story. The auto enrolment pension levels are due to rise again in April 2019. The total minimum contribution will be 8%, with 5% contributed from employees and 3% coming from employers.
Nine million workers have been paying the minimum into their pension and to date the drop-out rates have been less than expected at 10% of employees eligible for auto enrolment opting-out. However, the government is predicting the rate of opting-out to increase from the current figure of 10% to 22% after April 2018, and 27.5% after April 2019.
Former Pensions Minister, Sir Steve Webb thinks that people will take the increase in contributions “in their stride” as their overall take-home income rises. The national living wage will rise by 4.4% also in April 2018.
If you’ve got a question about any aspect of payroll or need help on HR, including shared parental leave, contact one of our experienced team at Payroll Masters based in Birmingham. We are just a phone call away.