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Increase in pension contributions due to auto-enrolment

Daniel

Good afternoon all. As you may be aware, the amount that employers and employees are required to pay into their pension is due to increase on 6th April. The employer has to pay 3% and the employee 5%. There is an option for the employer to increase their contributions to make up the increase, the total has to be 8%. My question is, what are people planning to do about this? Is anyone e.g. planning to increase their employer contribution to 4%, or even to 5% to make up the full increase? In my company we have a large number of weekly-paid workers and I think a jump from 3-5% will be a lot for them. This might have the unintended consequence of forcing them to come out of the pension scheme entirely, therefore also losing their 3% employer contributions. 

Any advice gratefully received as ever! 

www.thepensionsregulator.gov.uk/.../increase-of-automatic-enrolment-contributions

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  • in reply to Daniel
    Wow! That is a lot for you and also for employees if it's passed through them.

    I've just sent my husband the link as I've been on at him to speak to his employers. He has a good pension scheme where his employers pay 9% in, but they still increased his contribution to 3% last year and also said that it would be changing again in April 2019.
    He will be worse off come April (as will many others) as his employers aren't giving any pay rises this year either.
  • in reply to Stacey
    We have a lot of weekly-paid guys currently on 3%, so it's a big increase to go to 5% in April. I'm not sure what the government's thinking is on this, it may just force lower-paid workers to come out of a pension scheme entirely.
  • in reply to Daniel
    It definitely sounds like it's going to do more harm than good and will potentially hit those that may need it the most.
  • in reply to Daniel

    No on this one I think the Governments thinking is clear - people aren't doing enough to save for their retirement - so publicise 5/6 years in advance that these changes were going to happen and hope that employers work with their employees and reward strategies to facilitate the changes. Their hope was that employers would build up to this (like Stacey has done) rather than wait to the very last minute

    Wasnt it the Pensions Act 2008 / 2011 that brought in these changes and the escalator?

    Nothing in these changes should be a surprise for employers as we have had lots of notice and if they are for employees its because their employer hasn't engaged and educated them.

  • in reply to Keith
    Well I feel a bit silly now, as I seem to be the only one on this forum who didn't sort this out months ago! I'm not sure if the government has done anything to remind or publicise to employers and employees that these changes are coming. 2008 is a long time ago, and 2% is a big jump! Anyway, I suspect that my company will just pay what we are legally required to pay and leave employees to decide if they want to either up their contributions or quit the scheme entirely. I suspect that quite a few will do the latter.
  • in reply to Daniel
    To be fair Daniel ( and I have no wish to make people feel silly) the contributions were increased last year and the year before its just a bigger rise this year so its not like we aren't in a rhythm for this. Its been covered a lot in the HR & Finance press and also on here and other places. Most Finance directors have also been aware for some time so its a shared responsibility.

    You may be right that some people will withdraw entirely (and of course be auto enrolled again every three years) the Governments long term aim is to hope inertia leaves more people in the scheme paying more than the old Opt-Ins schemes. So far its worked but we shall see.
  • in reply to Daniel
    Ah no need to feel silly. Ours has only fallen the way it has because our pension contribution as the employer has always been 5%. I doubt we would have increased our contribution in all honesty if we were paying in lower than that.
  • in reply to Keith
    Inertia worked before.

    Of course people will be worse off. They are saving for their retirement.

    Anyone I have spoken to in the pensions industry thinks it will continue to increase, which is what has happened in Australia, which is the country we are modelling our approach on. They are now paying 10%
  • in reply to Peter Stanway
    Agree Peter a few years here then another couple of upwards steps.
  • in reply to Daniel
    no such thing as a silly question on this community Daniel :) A good awareness raising post for us all.