The latest on auto enrolment

The Pensions Act 2008 laid the grounds for what we now know as auto enrolment and by this point in time it is essentially a fact of life for employers and employees.  As of the start of this tax year, however, the contributions framework has changed slightly and will change again as of April 2019.  This year the level of contributions raises from 2% or 3% of pensionable pay (depending on how pensionable pay is calculated) to 5% or 6% of which the employee will pay 2% or 3% and the employer 3%.  In 2019, contributions rise again to 7%, 8% or 9% of pensionable pay (again depending on how pensionable pay is calculated), with the employee paying 3% (of 7% or 8%) or 4% (of 9%) and the employer paying 4% (of 7%) or 5% (of 8% and 9%).  Here are some thoughts on what this could mean for employers and employees.

For employers These increases have been on the cards for some time now, so hopefully you have already prepared for them financially, if not then you need to start incorporating them into your financial projections as quickly as possible.  When calculating your potential liability, remember to include “entitled employees” who do not have to be auto-enrolled but who may choose to join the pension scheme.  In some cases, you may be required to contribute to their pension savings. When considering your future financial plans, you may wish to take into consideration the possibility that the auto-enrolment scheme will be extended.  Obviously at this point, this is just a conjecture, however, there is no secret about the fact that politicians of all persuasions are keen to encourage pension savings and extended the auto-enrolment scheme could be seen as furthering that goal. You will also need to be prepared to deal with opt outs and people who have previously been enrolled but now wish to stop contributing.  Admittedly this has always been the case, however it is currently very much an open question as to what impact the increased level of contributions will have on people’s willingness to enter the scheme or to continue with it.  On the one hand, inertia can be a powerful force.  On the other hand, when money is tight people may well take the view that they need to prioritise making ends meet in the here and now before worrying about their retirement.  When people do opt out or stop making contributions, under current rules, they need to be re-enrolled after 3 years, unless they again actively choose to opt out.

For employees Employees do not need to do anything, the increased contributions will simply be taken from your salary automatically, hence you only need to take action if you wish to opt out (if you are moving to a new job and have not yet been auto-enrolled into their scheme) or if you wish to cease making contributions.  You should be aware that, in the latter case, you will not only lose the benefit of the contributions you would have made yourself, but that you may also lose the benefit of your employer contributions.  Basically your employer is only obliged to make contributions if you do.  They may choose, voluntarily, to continue to make contributions into the scheme on your behalf, but they do not have to.  This means that, if you are finding money tight at the moment, then it would generally be highly advisable to look carefully at all options for improving your situation before you take a final decision on whether or not to opt out/cease contributions.  You do, however, have the option to do so if you conclude that this is in your best interests for the time being. For pension and investments advice we act as introducers only.