How best to communicate the upcoming increases in workplace contributions to employees (in a positive light)
Auto-enrolment has introduced over 10 million people to saving into a workplace pension for the first time, and employees have been gently eased into saving with low contribution levels. However, as the April 2019 increases are the highest yet, it’s important to ensure employees understand the benefits of their contributions going up to ensure opt out rates are kept low.
From April, basic rate taxpayers are going to find themselves £130 better off each year as a result of the increase in the personal allowance to £12,500. This will help offset the rise in their pension contribution. Tax relief means that 20% of the amount invested for the employee is added by the government, making a pension one of the most tax-efficient ways to save. In addition, it will be important to stress that the company’s contribution, i.e. free money to the employee, is also going up.
For someone earning £20,000 and currently paying 3% of qualifying earnings to their workplace pension, the impact of the contribution increase to 5%, given the 2019/20 tax and NI thresholds, is only a reduction of around £6.50 per month in net pay. That’s hopefully affordable for most people, especially as, in this example, it would mean an extra £34 (employer + employee contributions) going into their pension each month.
In our experience, employees know that they have to save more for retirement. The increase in pension contributions may not be welcomed by everyone, but we think that most people will accept it as a way to help them save more for the future. As their employer, you can help your employees understand the benefits of saving for retirement through various methods of communication, including pension presentations and workshops.
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