Employee Pensions

Notice anything different in your pay packet this month?

The more keen-eyed of you should have seen an increase in your own contribution to your workplace pension.

The new rate came in in April and means that employees must pay a minimum of five per cent under auto-enrolment rules. If you are really on the ball you will remember that the same contribution increased from one per cent to three per cent this time last year.

In some respects, this is good news.

All eligible employees are automatically signed up to the scheme which is designed to take some of the financial worries out of retirement.

So surely, the more we pay in the better off we will be when the time finally comes to hang up our boots and leave the workplace for good?

The answer, as ever, is both yes and no.

Of course, an increased contribution – and your employer is also having to pay more into your scheme with their contribution going up from two per cent to three per cent – will mean more cash at the end of your working life.

But for some, the increase could see them pushed beyond financial breaking point, meaning they quit the scheme and are left with less cash when they retire.

To give you an idea of the sorts of figures involved, consider this. An employee on around £27,000 a year and paying in the auto-enrolment minimum will see their personal contribution rise from about £500 to more than £850 in 2019/20.

That could be a big enough increase to force some to consider their future in the scheme. Austerity, static pay settlements and the economic turbulence being caused by Brexit may convince many of the benefits of bread today over jam tomorrow.

But if you are thinking of quitting your workplace pension, then think very carefully about the consequences.

You will lose both your employer’s contribution and the tax relief offered by the Government – a double whammy which amounts to a pretty hefty voluntary pay cut bearing in mind they essentially double the value of your own contribution to the pension.

So proceed with caution. And if you think you need some independent advice about your options, don’t hesitate to get in touch.

If you would like to discuss these issues, or other HR concerns then please

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