Whilst most people are aware of ‘auto-enrolment’, many are unaware of exactly how much they and their employer are contributing and think it is more than is actually being paid.
The reason for this is because auto enrolment minimum contributions are only based on qualifying earnings and not the whole amount. For the current tax year, 2018/19, the qualifying band is between £6,032 and £46,350 a year. This means the first £6,032 of your salary isn’t included when it comes to contributions, and neither are any earnings over £46,350.
As an example, this is how much someone earning £30,000 a year and their employer would pay into their workplace pension:
Gross salary £30,000
Qualifying earnings £23,968
Employer contributions (2%) £479.36
Employee contributions (3%) £719.04
Total contributions per year (5%) £1198.40
Being unaware of the qualifying earning bands and calculating on gross annual income would give a much higher figure, £1500!
From April 2019 the minimum contributions increase to 3% for employers and 5% for employees. Based on the example above, someone earning 30k a year would then be paying £1198.40 into their pension and their employer paying £719.04, a total of £1917.44 which is an additional £719 compared to what’s being paid in currently.
There has been a lot of talk, especially from lower earners, about auto enrolment contributions being paid on total earnings in a bid to improve the value of their pension pot when they retire. Whilst auto enrolment is reviewed every year by the government there has been no mention of removing qualifying bands.
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