The law has changed and larger employers have started setting up workplace pensions for their staff and from 2018 every employer has to offer their staff a pension.
From 2019 you will have to put in at least 4% of your salary. The Government will bung in an extra 1% and your employer has to put in at least 3%. So that’s 8% which will be building up, month after month.
The more you earn, the more you will save.
You can stick two fingers up at this (“opt out”), but it’s not a great idea because you’ll forfeit the 3% from your employer and 1% from the government.
There is a minimum total amount that has to be contributed by you, your employer, and the government in the form of tax relief. This total minimum contribution is currently set at 2% of your earnings (0.8% from you, 1% from your employer, and 0.2% as tax relief). This is going up over the next 2 years.
The minimum contribution applies to anything you earn over £5,824 (in the tax year 2016-17) up to a limit of £43,000. This includes overtime and bonus payments. So if you were earning £18,000 a year, your contribution would be a percentage of £12,176 (the difference between £5,824 and £18,000).
This amount is slowly ratcheting up between now and 2019. The Government wanted to ease us all into this gently – and for small employers this is quite a chunky pill to digest!
From April 2018 this will jump to a total of 5% of your earnings (2.4% from you, 2% from your employer, and 0.6% as tax relief). And from April 2019 onwards, it will get to a significant 8% of your earnings (4% from you, 3% from your employer, and 1% as tax relief).
Our Retirement Income Guide has some more detail.
Just be aware...
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