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Despite the record number of people signing up for automatic enrolment pension schemes, issues may emerge as employee contributions are set to rise over the next two years and the issue of pensions’ tax relief is discussed by the Government.

Both employers and employees should take heed of all important dates when minimum contributions are going up so they factor these rises into their budgets.

At present, employers contribute a minimum of 1% into their auto-enrolment pension scheme for their staff and will be expected to pay in at least 2% from April 2018 and 3% from April 2019.

Many employees who currently make a 1% contribution to their auto-enrolment pension scheme could see this rise to 3% in April 2018, and a further increase to 5% in April 2019.

Lesley Titcomb, Head of the Pension Regulator has already voiced concerns that those who are “just about managing” may have to sacrifice pensions savings as the minimum level of contributions rises, even in cases where the employee is lucky enough to be in a ‘relief at source’ pension scheme, where all employees, regardless of whether they are taxpayers or not, get 20% tax relief.

In his new post as Department of Work & Pensions (DWP) Secretary of State, David Gauke has recently pledged to deal with items on the ‘to do’ list he took over from the DWP ministerial team and hopes to enact his own agenda for pensions. However, at the Association of British Insurer’s conference when asked about the topic of pensions’ tax relief, he "saw no particular consensus emerging" for a new form of tax relief.

In the April 2015 budget, the Chancellor announced that a total overhaul of pensions’ tax relief was due, as it was costing the Treasury around £35bn a year, 60% of which goes to just five million taxpayers.

There was no mention of pension tax relief in the 2015 Autumn Statement nor in the Budget for 2016. These two years of inactivity due to the political climate and a lack of addressing the issue of inequality of pensions’ tax relief means that from October 2017 onwards, problems could arise.

Date published 24 Jul 2017 | Last updated 24 Jul 2017

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