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What could be the effect of autoenrolment changes?

DM
BY Donald MacKinnon
Employment Law & HR
BG Purple

It has been reported that some businesses, particularly small businesses, have been fined because they were not prepared for autoenrolment. Despite 90% of businesses being compliant, there are those who have missed their staging date. If you are not currently autoenroling your employees, we would encourage you to contact your pensions advisers.

To ensure that this does not happen in the future it is important to be aware of the changes to the minimum contribution in the coming years. The current minimum is 2%, 1% each from both the employer and employee. In April 2018, this will increase to 5%, 2% from the employer and 3% from the employee. April 2019 will see the minimum contribution increase to 8%, 3% and 5% from the employer and employee

To put this into context, an employee earning the average wage who is currently contributing £18 a month will be paying £92 per month by 2019 which many may find a struggle.  Presently, 10% have opted out of their pension scheme according to Government figures. It is predicted that the opt out rate will increase to over 27% by 2020 as employees feel they cannot afford the increased contribution, although this estimate may be slightly pessimistic.  As an employer, you may choose to increase your contribution above the minimum required and therefore reduce the burden on the employee to meet the minimum level but this would be at your discretion.

Eight million people have been added into a pension scheme since 2012. Pensions experts think this is a significant achievement but stress that contributions need to increase for these savings to be worth enough for people to retire with a reasonable pot. Tom McPhail, head of policy at Hargreaves Lansdown told the FT that work needs to be done to ensure that the lower paid and the self-employed are covered by a pension plan and to encourage the young to save for retirement as soon as possible.

It is important to be prepared for the increased costs that will result from these pension changes and make decisions on how these can be mitigated. The Pensions Regulator and your pensions advisor will be able to help you ensure that you are protected and remain compliant.

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