Do I have to put more money into my pension from April?
More than 10 million workers are now saving into a pension, thanks to the government’s auto-enrolment initiative.
Under auto-enrolment, all employees who meet certain criteria are put into a pension scheme unless they decide to opt out.
Staff are required to pay in a minimum contribution of 3% and employers must pay in at least 2%.
From 6 April 2019, these minimum contribution levels are increasing to 5% for employees and 3% for employers.
The contribution levels are going up to give workers a better chance of having a decent sum of money at retirement.
These contribution hikes are mandatory for anyone who is auto-enrolled.
If you don’t want to see a dip in your take-home pay from April, some pension schemes will let you contribute less than the statutory minimum under auto-enrolment. But if you do this, you’re in effect opting out of auto-enrolment.
“This could have a huge impact on your overall pension savings,” says Helen Morrissey, pension specialist at insurer Royal London.
“If you are auto-enrolled into a pension then you have a right to receive a contribution to this pension from your employer. However, if you choose to do something different – i.e. pay less than this auto-enrolment minimum then the employer is under no obligation to make a contribution.
“This means your pension saving is being hit with the double whammy of receiving less of a contribution from you and potentially nothing from the employer. Over time this can really add up and result in a much lower pension when it comes to retirement.
“People should think very carefully before deciding whether to do this.”
Indeed, new research shows just how damaging forgoing a private pension could be.
Figures from Nationwide show that people who rely solely on the state pension risk a shortfall of £68,000 on average over the course of their retirement – or £380 a month.
A spokesperson from The Pensions Regulator said: “Opting out is not in the best interests of staff. Automatic enrolment is a fantastic opportunity to save for retirement and we want staff to get to know their pension and appreciate the benefits.”
If you do opt out, you will be assessed and re-enrolled into a workplace pension scheme on your employer’s next re-enrolment date which happens every three years.