The percentage of salary employers and employees must contribute to a workplace pension has increased from 6 April 2018.
Employees will now contribute three per cent (up from one per cent) of their annual salary into a personal workplace pension, while employer contributions have increased from one to two per cent.
Under the new rules, an employee earning an average salary (around £27,000) can expect to pay about £350 more a year into their personal pension.
If this sounds too steep, a worker can choose to opt out of automatic enrolment. But this also means they will no longer be saving for their retirement. A worker can also choose to continue paying the old rate of one per cent of total salary. If the employee chooses the latter option, an employer has no obligation to make further contributions to their pension.
The measures are part of a campaign to help workers save more for retirement, but the increases won’t stop there. Contributions will rise again from April next year to five per cent from the employee and three per cent from the employer.
The most recent figures show that more than one million employers have enrolled over 9.3 million workers into a workplace pension scheme.
Currently, only employees who meet eligibility requirements – linked to pay and age – need to be enrolled, but employers should carefully monitor workers’ individual circumstances so they can be enrolled when the time comes.