Pension contributions offset tax gains

Contribution rates for workplace pensions went up in April 2018. For many employees, the increases will wipe out the gains from tax changes for 2018/19.

Auto-enrolment began in 2012 with existing employers joining the scheme until February 2018. As a result, the number of people with a workplace pension has risen by nearly a quarter. The next step is an increase in contribution rates from 6 April, with another rise in 2019/20.





Employer minimum








Total minimum




Earnings band

£5,876 to £45,000

£6,032 to £46,350


* If the employer pays the total minimum contribution or more, the employee will not need to pay any contributions, unless their scheme rules require it.

For example Jessica, an English resident employee earning £35,000, will save £70 of income tax in 2018/19 from the increase in the personal allowance. She will also save £31 of national insurance contributions (NICs) because of the increased NICs thresholds. However, her net of tax pension contributions will rise by £462, so Jessica’s net income will have dropped by £30 a month in 2018/19.

Of course, this money is not lost. It is invested in a pension, meaning there will be more funds available in retirement.

Further changes

Looking to the future, the government wants to lower the starting age to 18 and it also aims to ensure contributions are paid from the first pound earned, although probably not until the mid-2020s.

This newsletter is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this publication. The newsletter represents our understanding of law and HM Revenue & Customs practice as at 13 April 2018.

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