Increase in minimum pension contributions from April 2019 will see take home pay fall

Staff who are automatically enrolled into their employer’s workplace pension scheme will have to pay higher contributions from 6 April this year and this will result in a reduction to take home pay for many. These changes only apply to defined contribution (also known as money purchase) pension schemes.

All qualifying workers are now automatically enrolled into a workplace pension scheme (although workers do have the option to opt-out if they wish). By law, a total minimum amount of contributions must be paid into the pension scheme each month. The employer must pay at least the minimum employer contribution and the employee must make up the rest.

From 6 April, the minimum, monthly employee contribution will increase from 3% to 5% of pay. At the same time, the minimum employer contribution will increase from 2% to 3%. This means that the total minimum contribution which will be paid into a pension scheme for an employee will be 8% of qualifying earnings.

Where staff are already paying at or above this rate then there will be no change for them. However, if deductions were not previously at this level then staff will notice that slightly more money is coming out of their pay packets in the form of pension contributions than was previously the case (unless the employer decides to cover the increased contribution).

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