Changes to Auto enrolment Pension for New Tax Year
Local independent financial adviser, Steve Embrey of Pi Financial Ltd, explains changes to the opt-in rates for auto enrolment pensions:
From 6 April, nine million workers who have auto-enrolment pensions will have to pay more in. Their monthly contributions will triple, from a minimum of 1% to a minimum of 3%.
Most people will therefore have to pay several hundred pounds a year more. But by doing so, they will also get a 2% contribution from their employer, and more tax relief from the government.
How much extra will I have to pay?
By the time a second round of changes comes into effect in April 2019, the average worker will be paying an extra £700 a year into their auto-enrolment pension, according to the stockbroker AJ Bell.
Until now, employees have been paying just 1% of their qualifying wages into their pensions. This is made up of 0.8% from the worker, plus 0.2% in tax relief from the government.
For someone on an average £27,000 salary, that has meant annual contributions of about £169.
But this April, that will rise to a minimum of 3%, or £517 on average.
In April next year, the employee contribution rate will go up to 5%, or £876 a year.
The auto-enrolment system is all in or all out, if you want to be sure of getting free employer contributions into your pot.
Some employers are more generous and choose to contribute anyway – and above the minimum level. But if yours does not, you will have to pay in more from April, because there is no option to stay in at the old 0.8 per cent level and still benefit from compulsory employer top-ups.
From April, the Pensions Lifetime Allowance – the most you can have in a pension pot – is going up from £1m to £1,030,000. Having more than that means paying 55% tax on lump sum withdrawals or 25% on income withdrawals.
Those with a state pension will see their income rise by 3% from 9 April, thanks to the government’s triple lock mechanism. The Consumer Prices Index (CPI) rose by 3% in the year to September 2017.
It is a wise idea to enlist the help of an independent financial adviser to evaluate your situation at the start of the new tax year.
So if you need a financial adviser in Shrewsbury or surrounding areas contact Steve on 01743 282222 or email firstname.lastname@example.org