What does 2019 have in store for Pensions?
25 Apr 2019
The state Pension is set to rise in April by around £4.25 a week or £220 a year. The full State Pension will now be worth £168.60 a week rising from £164.35 a week – above the rate of inflation. This now works out that pensioners will receive £8,767.20 a year. Is this enough for you to live on? Now could be a good time to look at your retirement options.
Workplace Pensions are set to rise
Workplace pension contributions are set to rise under the rules of Automatic Enrolment. The minimum contribution for employees is set to rise from 3% - 5% with Employers contributions to also rise from 2% - 3%. The big question is will this have an impact on opt out rates?
Tom Selby, senior analyst at AJ Bell says: “To put it into perspective, someone earning around £27,000 and paying in the auto-enrolment minimum will see their personal contribution rise from about £500 this year to more than £850 in 2019/20.
“While for most people this is still not enough to enjoy a comfortable retirement, we are now getting to the stage where some reluctant savers could start to feel the pinch. Rising average pay during 2018 should help ease the pain, but anyone missing out on a salary hike could well be tempted to prioritise spending today over saving for tomorrow.
He adds: “Anyone thinking of quitting their workplace pension needs to understand that they will be losing out on both tax relief and their employer contribution, which put together double the value of the money they put in. Put another way, opting out of your pension is a bit like taking a voluntary pay cut – so nobody should do it lightly!”
The former pensions minister, Sir Steve Webb, however, is confident that the scheme will continue to achieve its object of increasing individuals’ private pension savings.
“With a fair wind this should go well,” he says. “New research from the DWP has shown that the April 2018 increase in contributions had virtually no impact on pension opt out rates. Pay packets will also be boosted in April 2019 by the increase in tax-free personal allowances which should also ease the pain of the contribution increase. Unless there is a lot of Brexit-related turmoil in April 2019, the contribution increase should pass off without event.”
From the 6th of April 2019, the Lifetime Allowance is set to increase. The Lifetime Allowance is the amount of money that you can put in to your pension savings, before tax charges apply. The amount is rising from £1,030,000 to £1,055,000 for the 2019/2020 tax year. This increase is a product of the Consumer Price Index (CPI) measure of inflation, which determines the change in pension Lifetime Allowance year on year. The CPI measure of inflation this year was calculated at 2.4%.
This change will offer the chance for workers to save more money in their pension pots before they get hit with a large tax sum. Although this is positive news for some savers, there is also the annual allowance to consider, which limits the contribution that workers can pay in to their pension on a yearly basis.