Most businesses across the UK are preparing to increase their minimum workplace pension contributions, having successfully enrolled more than 8.5 million staff into schemes since the dawn of auto-enrolment.
Auto-enrolment minimum contributions were due to rise in October 2017 under the original plans and then again in October 2018, but the Government has since made the decision to defer the date by six months.
This means that the first increase will now take place on 6 April 2018 and will see total contributions increase from two per cent of qualifying earnings to five per cent of qualifying earnings, of which two per cent must be paid by the employer.
Then on 6 April 2019, the rate of contribution will rise again to a total of eight per cent of qualifying earnings, of which three per cent must be paid by the employer. For employers, these increases signify substantial additional costs.
The increase in minimum contributions comes as the Government confirms that it will proceed with plans to increase the target group that are deemed eligible for auto-enrolment. This will see them lower the qualifying age from 22, down to 18, by the mid-2020’s.
It is believed that the move will introduce more than 900,000 young people into the workplace pension system, allowing these workers to save an additional £800 million towards a more secure retirement.
Commenting on the proposals, Work and Pensions Secretary David Gauke said: “We are committed to enabling more people to save while they are working, so that they can enjoy greater financial security when they retire. We know the world of work is changing, so it is only right that pension saving does too.”
The plans come as part of a review published by the Department for Work and Pensions (DWP) and it is hoped that the proposals will promote and encourage the ‘habit of saving’, amongst teenagers especially.
Other proposed changes include an adjustment to the way contributions are calculated; a measure designed to help the many millions of people who are ‘under-saving’, improve incentives for those in multiple jobs and simplify the way employers assess their workforce.
For most pension schemes the first £5,876 is excluded from pensionable income as contributions are calculated based on the Lower Earnings threshold. The changes, once implemented, will ensure that contributions consider every pound that is earned, supporting workers to save more.
While many workers may welcome the changes outlined in the DWP’s review, employers may well look upon them as yet more of a burden on their already limited time and resources.
In addition, whilst many professionals have acknowledged that the review contains several very good ideas, they have criticised the timescales associated with the changes dubbing the time to implementation ‘shockingly lethargic’ and warning of a ‘lost generation’ of individuals who will not be able to afford to retire.
It’s worth remembering also, that whilst the Government are seemingly taking steps towards making pension-saving more inclusive, lower paid workers and the self-employed are still at a significant disadvantage.
In response to this issue, the Government have put forward proposals which will see them test a series of ‘targeted interventions’ whereby they will work with organisations who act as ‘touch points’ for the 4.8 million self-employed people to explore how technology can be utilised to improve their pension saving.
However, just how these tests will fair in the end remains to be seen as Pensions Minister, Guy Opperman, maintains that there is no ‘simple solution’ for including the self-employed in auto-enrolment.
Here at George Hay our specialist team are able to assist employers with administering their chosen pension scheme and ensure that they are complying with the requirements of auto-enrolment at all times. If you would like to find out more about our services, contact us today on 01767 315010.