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Workplace Pension Contributions - Fleximize

Workplace Pension Contributions

Contributions from you, your employer and government are rising.

By Marcia Smith

Auto-enrolment by 2018

There are specific rules for the new auto-enrolment workplace pensions. By 2018, all employers will be obliged to auto-enrol their employees into pensions – unless they already have a pension scheme, or the employee wishes to opt out.

Under the new rules for workplace pensions, the minimum contributions are based on an employee’s qualifying earnings. It’s up to your employer to calculate your qualifying earnings, but it must be either the amount you earn before tax between £5,772 and £41,865 a year, or your entire salary before tax.

Minimum contribution is rising

The minimum amount amount you must pay into your pension is currently 0.8% of your qualifying earnings, but this will rise to 4% by 2018. Your employer is required to contribute at least 1% of your qualifying earnings, and this figure will rise to 3% by 2018. The government currently pays an amount equal to 0.2% of your qualifying earnings, and this will increase to 1% by 2018.

Contributions will be made every time you are paid. Say, for example, you receive £1,000 in a pay packet. From 2018, you will pay at least £40 of your pay into a pension, your employer will add at least £30, and the government will contribute £10 in tax relief.

There are a number of different types of workplace pension, all of which qualify for government contributions in the form of tax relief.

Some employers may choose to operate schemes in which both you and they contribute more than the statutory minimum amounts. Other employers may offer some choice in the payments. In all cases, employees will retain the right to opt out if they wish.