Bigger pension payments could mean 'harsh jolt' for millions of UK workers

Millions of workers will be forced to put more into their pension pot from this month, with a warning that pay packets will suffer as a result.

From the start of the new tax year today, workers in auto-enrolment pensions will see retirement contributions rise from 1% per month to 3%.

Experts warn the increase will leave many workers facing a ‘harsh jolt’ to their monthly incomes.

‘The increase in monthly auto-enrolment pension contributions may result in a decrease in take-home pay for some workers,’ said Rebecca Goldring, a tax manager at accountancy firm Blick Rothenberg, reported the BBC.

‘For many, this increase will feel like a harsh jolt.’

The government has said contributions should increase so more people prepare for their future after work.

Under the new proposals someone earning £27,000 a year will end up paying an extra £350 a year in pension contributions.

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The government though say workers will be able to cope with the increased contributions as many workers will receive a pay rise in April, to offset the costs.

This month, more than two million people on the National Minimum Wage will see their pay rise by up to 5.3%.

Auto-enrolment started in 2012, rolling out gradually from the biggest companies, which tend to have more experience of pensions, to the smallest.

It was introduced amid fears that, as people live for longer, many are not putting aside enough cash for a comfortable retirement.

It makes pension saving the ‘do nothing’ default option. Eligible workers have to actively opt out if they do not want to take part.

Contributions are made up of money put in by staff and employers and also get the benefit of tax relief.

Previously, the minimum combined rate was 2% and it has now jumped to 5%.

In April 2018, the combined minimum contribution rate will increase again, to 8%.

Up to now, around nine in 10 workers who have been auto-enrolled have remained in their pension rather than opting out.

Under the new proposals someone earning £27,000 a year will end up paying an extra £350 a year in pension contributions.

Figures published by the BBC claim that someone paying into the pension could earn up to £18,000 a year if they started putting money into their pension pot at the age of 25.

For someone who started at the age of 35, that retirement income would be around £12,000.