Workplace pension contributions are increasing! Why this is the perfect time to communicate the value of your pension
Minimum contributions to workplace pensions are increasing from April 2019. For some workers, this means their pension contribution could increase by 66%.
The table below shows how the new minimum contribution changes could affect workers:
As this April is the month that your employees will see the drop in their pay packet, it is the perfect time to remind them of the value of their pension, so they feel more positive about this change.
Here are a few of the benefits you could cover:
A comfortable retirement
Roughly one third** of UK adults aren’t saving at all for their retirement. Of those that are saving into a pension, many aren’t saving nearly enough to give them the standard of living they hope for when they retire.
The State Pension is great for basic living expenses, but not something to solely rely on in retirement. Get your employees to ask themselves how much income they would want each month to enjoy their retirement?
The State Pension is likely to only pay out around £730 per month, assuming they qualify for the full State Pension.
Get your employees motivated about their future savings so they are positively engaged in this change. Help them to understand that saving more into their workplace pension now will mean they have a more comfortable retirement in the future.
**Money Advice Service
More money from your company
With the minimum employee contribution going up, the company will also be putting more money into each employee’s pension (unless already paying at or above the new minimum rates). This means that the total contribution per month will be increased.
The higher the monthly contribution, the higher the total pension pot at retirement. And more money from the company, means more money for your employees in retirement!
Your employees will also benefit from additional tax savings by putting in a higher contribution each month, getting more bang for their buck!
Tax free lump sum
Don’t forget to mention that they can take a 25% tax free lump sum when they retire too!
*assuming salary sacrifice, standard tax code and minimum contributions (contributions based on basic pay not qualifying earnings).
This example shows that an employee who earns £25k per annum will see a £28.33 per month drop in their ‘take home’ pay, but they will be saving an extra £62.50 in total per month into their pension.
There are so many positives to communicate to your employees about increasing contributions to their company pension, whether it be through choice or not (in this case)!
The worst case scenario is that they panic about their monthly salary going down a bit and opt out! As a company who cares about their employees’ future wellbeing, you do not want this to happen!
If you haven’t done so already, communicate to your employees now to remind them about this change to their pension contribution and emphasise the positive impact this will have on them when they reach retirement.