Pension contribution hike to hit pay packets

[Itsallaguess]

Millions of workers could see their take-home pay fall in six weeks' time when the amount they have to pay into their pension pot increases.

Analysis for the BBC has examined how pay will be hit when higher contribution rates for those with auto-enrolment pensions kick in.

Since 2012, 10 million eligible workers have been automatically signed up to workplace pensions.

From April, their contribution will rise from 3% of their salary to 5%.

More on this story in this BBC article -

https://www.bbc.co.uk/news/business-47269042

It should be noted that the personal tax allowance will rise to £12,500 from April too, so that will limit the impact of the above pension-contribution hike -

"This is going to affect up to 10 million people who've been auto-enrolled in the past few years, so the potential impact of this change is quite substantial."

The analysis carried out for the BBC by Hargreaves Lansdown suggests the annual take-home pay of someone earning £15,000 will typically be £49 lower, if they pay contributions on their entire salary.

Someone on £30,000 will take home £253 less according to the calculations.

The hit to net pay could have been bigger but a tax cut for most earners will soften the blow of higher auto-enrolment contributions.

The personal allowance is due to increase to £12,500 from April.

Cheers,

Itsallaguess

[OLTB]

What a negative headline by the BBC!

I prefer, "Pension contribution hike to ensure a better standard of living for millions in retirement".

Successive governments of different colours have been involved in starting the Auto-enrolment pension legislation since Lord Turner proposed the plan in 2006 and I think it should be applauded. The 'nudge' theory seems to have worked with the percentage of workers opting out being far lower than anticipated (approximately 9% as opposed to the projected high of 28%) https://assets.publishing.service.gov.u ... report.pdf . Whether this opt-out remains low I suppose depends on the effects of the next increase in contribution from April, but hopefully with the corresponding increase in personal allowance, any effect will be subdued slightly - the government could always make the pension contributions compulsory rather than having the opt-out I suppose.

Cheers, OLTB.

[Stonge]

Just a ruse to abolish state pension.

[ursaminortaur]

Just a ruse to abolish state pension.

No, It's a replacement for the earnings related SERPS/S2P and the replacement has already happened.

[Stonge]

Entitlement to which reduces the state pension entitlement. QED

[pochisoldi]

Entitlement to which reduces the state pension entitlement. QED

I assume you mean the COPE figure which reduces the "pension earned up to 5th April 2016" base figure.

The counter to this is that the figure can be built up to the maximum, if you have sufficient full NI years left to work/claim NI credits for.

[Chrysalis]

Stonge I don’t understand your comment, sorry.

I agree the reporting has been hugely negative. Employers contributions (free money) are going up and there is tax relief on contributions too. So what will end up in people’s pension pots (their own money) will be a lot more than the reduction in their take home pay.
Is it any wonder people don’t feel they need to take positive responsibility for their retirement savings with this kind of messaging?

[XFool]

Just a ruse to abolish state pension.

No, It's a replacement for the earnings related SERPS/S2P and the replacement has already happened.

Entitlement to which reduces the state pension entitlement. QED

Oh no it doesn't!

Although I have to say I don't understand the meaning of your post. If you had said "The New SP means the abolition of the second state pension which will in time lead to a saving of government expenditure" - that would be correct. But you didn't say that and what you did say appears to me to not make sense.