Contributions to your pension pot

Good news – the total amount saved towards your retirement is increasing. There have been some important changes to the minimum amount that’s paid into your pension pot. These payments are called contributions.

When you’re automatically enrolled into a pension (like The People’s Pension), by law there are set minimum contribution levels.

These contributions are completely separate from the State Pension which, at £8,296.60 a year or £159.55 a week currently (based on someone reaching state pension age on or after 6 April 2016 with a full National Insurance record), is likely to need topping up for most to enjoy a more comfortable retirement.

From 6 April 2018, the total minimum contribution is going up. This means the total minimum amount your employer pays into your pension pot, and the amount of money the government puts in (known as tax relief) based on your part of the total minimum contribution, will be increasing.

How your contributions could look

The amount you need to pay in may be going up too. You have to make up the difference between what your employer pays in and the total minimum contribution.

The table below shows how your levels of contributions would look if your employer pays the minimum contribution.

Employer minimum contribution Employee contribution Tax relief on employee contribution Total minimum contribution
Until 5 April 2018 1% 0.8% 0.2% 2%
6 April 2018 – 5 April 2019 2% 2.4% 0.6% 5%
6 April 2019 onwards 3% 4% 1% 8%

Remember… whatever money you put in to your pension will be topped up

Think of it as extra ’free’ money. It’s a very effective way to add to your retirement savings! Our video ‘Understanding pension basics’ explains how this works:

 Watch the video: Understanding pension basics »

If you stop your contributions or reduce them below the statutory minimum, you lose this extra money.

How these changes can benefit you

The People’s Pension is a defined contribution pension scheme. This means that your employer’s contributions, together with the contributions you pay and basic rate tax relief from the government (higher rate tax payers may have to claim the rest from HMRC), are paid into a pension account in your name.

These contributions are invested. When you retire, the value of your account is used to provide retirement benefits for you and, if you wish, your dependants.

For example, using basic rate tax relief (higher rate tax payers will get more), here’s how contributions could change if you’re currently paying £8 per month:

So for the £8 you pay in, your employer and the government adds £12 extra free money to your pension pot each month.

So for the £24 you pay in, your employer and the government adds £26 extra free money to your pension pot each month.

So for the £40 you pay in, your employer and the government adds £40 extra free money to your pension pot each month.

This is a very effective way to save so don’t lose it!

If you don’t maintain the total minimum contributions levels, your employer does not have to pay their minimum contributions levels (although you would still get tax relief – the government contribution – topping up the amount you save).

Read more about tax relief »

What happens next?

Your employer may write to you over the next few months to tell you about these changes.

You won’t need to do anything – your company payroll will make the changes for you.

The best news is that the increase in contributions should mean you have more money put aside in your pension pot for when you retire.

Help & support: Contributions »

Next: Make changes to your pension

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