Ask the Expert: Do I have to pay the increased pension contribution in April?
This week our reader wants to know if they have to pay the pension contribution increase in April. Carl Lamb, managing director of Almary Green, responds.
I’ve been reading in the press over the weekend that the amount I have to put into my work pension every month is going to go up in April, whether I like it or not.
Surely they can’t make me pay in more than I want to, can they? It’s going to make it a bit of a struggle to make ends meet.
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Almary Green Response
You are right that the minimum contribution to your workplace pension will go up on 6 April.
This is compulsory for all members of workplace schemes and was part of the Government’s plan to make us all save more for our retirement.
The actual amount does depend on the way that your contribution is calculated for your scheme but in most cases it is rising from a total of 5 per cent to a total of 8 per cent of your “banded earnings” – a range of earnings from £6,032 and £46,350 a year in the new 2019/20 tax year.
However, that increase is not all paid by you – your employer’s contribution has increased alongside yours to make up the total of 8 per cent.
Your contribution goes up from 3 per cent to 5 per cent and your employer’s contribution from 2 per cent to 3 per cent.
You should remember too that your contribution of 5 per cent is the gross amount – which means that it includes the tax relief that you get on your contribution, so the amount you actually contribute from your net pay will be less than 5 per cent.
The other point to bear in mind is that the personal allowance for income tax goes up on 6 April from £11,850 to £12,500 (provided you earn less than £100,000) and the threshold for the higher band rate has also increased, so you may pay a little less tax on your earnings in the new tax year, lessening the impact of the higher pension contribution.