The start of the new 2018/19 tax year brought with it a the next found of auto-enrolment pension contribution increases.
The auto enrolment minimum is currently 5% of qualifying earnings, of which at least 2% must be paid by the employer. So where an employer pays this 2% minimum, the employee contribution has now tripled from 1% to a 3% deduction from pay.
Whilst the new tax year usually leaves most employees slightly better off via the change in tax and national insurance bands, once the changes in auto-enrolment are accounted for they could now be seeing an absolute fall in net pay.
For most employees the increase in the personal allowance will give rise to an annual tax saving of £70. The change in national insurance limits will top this up a little.
However an employee earning say £25,000 would have contributed around £190 in 2017/18 under auto-enrolment where the employer was contributing the 1%. For 2018/19 where the employer is contributing the 2% the employee will now have to contribute around £570.
So overall the employee may now be around £310 worse off in terms of net pay.
As employees start to receive their first payslips for 2018/19 employers could be facing some awkward questions!
Further, in April 2019 auto enrolment contribution rates rise again to of 8% qualifying earnings of which at least 3% must be paid by the employer, so the problem potentially gets even worse.