By now anyone who is paid on a PA YE (Pay As You Earn) basis will find themselves having been automatically enrolled into their employer’s Workplace Pension.
Both the employer and employee have to make contributions into the employer’s pension.
The initial level of compulsory payment has started very low – 1% of pay by employers and a similar amount by the employee. However, these will start to rise annually until they reach the final level currently required of 5% by the employee and 3% by the employer. The first increase was originally scheduled to take place in October 2017; however in 2015 the Government announced that the first increase would not take place until 6 April 2018 and then
on the 6th of April in subsequent years.
For most people the increase on the 6th of April 2018 will be from 1% to 3% for their own contributions and from 1% to 2% for their employer’s contributions. For example, a person earning £400.00 per week will have been paying £3.20 per month and the Government would have added 80p and the employer would have paid £4.00. That means the employee would have had £8.00 go into his pension for only a £3.20 payment monthly by himself. This is a 250% immediate return on his contribution!
The change in April for the same employee earning £400.00 per month will mean they would be paying £9.60 per month with the Government adding £2.40 and the employer £8.00. That is still a very attractive total of £20.00 into the pension for a £9.60 contribution – more than a 100% return on investment. It would be very difficult to get a better return than that! For most people being part of their Workplace Pension is a very good idea.
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