From April 2019, the minimum Automatic Enrolment (AE) pension contributions will increase from 5% to 8% of band earnings, altering the level of take-home pay and total remuneration to members in workplace pension schemes. This could potentially change employees’ attitudes to AE and there is debate as to whether this could lead to a high number of employees stopping saving into a pension scheme, or conversely be of benefit to more adequate incomes in retirement.
Key results:
The 5.9 million eligible employees who are already contributing at a rate above the minimum level may not have an increase in their contributions or see any reduction in their take-home pay from March to April 2019 due to rises in minimum contribution rates.
Increasing AE contributions in April 2019 across band earnings affects higher earning individuals proportionately more than those on lower pay.
Individuals earning between £12,600 and £16,000 per year will see an increase in their take-home pay from April 2019 due to the combined positive impact of income tax and NI changes.
Those on National Living Wage (NLW) will benefit greatly from the mandatory wage increase introduced in terms of take-home pay.
While employee contributions will increase in April 2019 resulting in a reduction in take-home pay, overall remuneration will increase as a result of the corresponding rise in employer pension contributions.
Overall, the cost to the employer will increase due to higher minimum employer contributions.
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