Pension changes

(3 minutes to read)

The Government increased the minimum pension contributions that must be paid in to your workplace pension scheme from April 2018 and another increase April 2019. Our scheme is the equal to basic pay scheme.

So what’s changing?

To April 2018 6th April 2018 – 5th April 2019 From April 2019
Total Minimum Contribution 2% 5% 9%

These contribution rates will apply to most employees. However please speak to your employer for the contribution rates that will apply to you.

Remember your employer and the government help.

Your employer must pay part of the total minimum contribution. You pay the difference between the total minimum contribution and the amount your employer contributes. Where you contribute, the Government can top up your contribution. In the examples below, we have assumed your employer chooses to pay the minimum employer contribution, and that you are eligible for basic rate tax relief on your contribution. However, please speak to your employer for the contribution rates that will apply to you.

Your Employer Pays You Pay
From April 2018 2% 2.4%
From April 2019 3% 4%

So, from April 2019 you are only paying half of the overall contribution with the other half coming from your employer and the Government. The Government contribution is in the form of basic rate tax relief, currently at 20%.

Consider the potential increase to your pension pot

To help you understand the potential benefit of the increase in total minimum contributions, detailed below are the potential increases in the pension pot size at age 65 for an individual:

• currently aged 25, 35 or 45
• currently earning £26,000 and assuming earnings increase each year in line with the Average Weekly Earnings Index (AWEI)
• with total contributions paid at the current minimum rate of 2%, increased to 5% from April 2018 and 8% from April 2019.

25 year old 35 year old 45 year old
£76,600 £49,700 £28,300

These figures assume investments grow each year at a rate of 2.5% (after allowing for the effects of price inflation), and plan charges of 0.75% each year. The figures are for illustration purposes only and are not guaranteed. Remember, the value of investments can go down as well as up. Price inflation reduces the worth of all savings and investments over time.

Information provided by Scottish Widows, click here to download the full leaflet.

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