Pay Times 2019: Pension deductions rise should mean a more comfortable retirement

The latest projections from the Office for National Statistics show that the number of people over State Pension age in the UK is expected to grow by a third between 2017 and 2042, from 12.4 million in 2017 to 16.9 million in 2042.

In response to this increased life expectancy, successive governments have announced that State Pension age is to be staggered based on gender and date of birth, a move which has already seen the pension age for women increase to 65 in line with men. Over the next year and a half, the pension age for both men and women is set to increase to 66 – although the High Court has recently given the go-ahead for women born in the 1950s to challenge the way the changes have been introduced.

But with rising pressure on the State Pension, and retirement ages due to increase again over the coming years (to 67 between 2026 and 2028, and to 68 between 2037 and 2039), it’s no surprise that wider pension provisions, and in particular the auto-enrolment programme, is seen as a key part of the solution for retirement funding.

So while the start of the current financial year saw an increase in the basic State Pension from £125.95 a week to £129.20, and a rise in the ‘new’ State Pension (which is based on an individual’s National Insurance contributions record) to a maximum £168.60 a week, perhaps the biggest change in pensions as of April 2019 was the increase in minimum contributions under the auto-enrolment pension scheme.

The total minimum auto-enrolment contribution now stands at 8% of an employee’s qualifying earnings, of which the employer must contribute at least 3% (up from 2% last year), and an employee 5% (up from 3%).

The increase will mean that someone working 35 hours a week on the minimum wage will now pay £440 a year, up from £246; but the present pain should mean a much more financially comfortable retirement.

Employers can pay more than the employer minimum contribution if they wish, with the employee making up the difference, as long as the employer meets or exceeds the minimum employer contributions and the total contributions meet or exceed the total minimum contributions.

If the new total minimum contributions are not met then The Pensions Regulator can issue large fines.

Employers also need to remember that every three years they will need to put any eligible employees who previously opted out, or who stopped saving into the pension scheme, back into it. This process is called is re-enrollment, and along with this is the re-declaration of compliance, which is completed online through the Pensions Regulator website and must be done no later than five months from the re-enrollment date.

You can find out more about this process on The Pensions Regulator website; failure to complete can result in a fine of £400 followed by £50 per day until this has been completed.

This article was written by Amy Sadler. If you have any questions regarding this article you can contact Amy using the form below.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.


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