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Increase in pension contributions due to auto-enrolment

Daniel

| 0 Posts

21 Feb, 2019 14:53

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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  • Stacey

    | 0 Posts

    21 Feb, 2019 15:16

    We increased our employee contributions last year to 3% and the employer pays in 5%.

    The way we have read it is that as long as 8% is going in that's fine.

    We aren't planning on making any employee increases this year unless anyone tells us different.

    Thanks
    Stacey
  • Keith

    | 0 Posts

    21 Feb, 2019 15:18

    I would be surprised if anyone hasn't already made this decision (unless they are a very small employer) I wouldn't want to be having the conversation with my FD now that in 5 weeks I was planning to increase our wage bill by 1 or 2 % . Many have been communicating this change for a number of months so there are no surprises.

    But as far as I am aware most organisations haven't absorbed this and have simply passed it through.

  • Daniel

    | 0 Posts

    21 Feb, 2019 15:19

    In reply to Stacey:

    thanks Stacey. Looks like you are ahead of the game! My company will have to decide whether to up its contributions to cover the increase, which will cost us around £60k per annum, or let the employees take the hit. Which will not be popular!
  • Stacey

    | 0 Posts

    21 Feb, 2019 15:24

    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.
  • Daniel

    | 0 Posts

    21 Feb, 2019 15:31

    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.
  • Stacey

    | 0 Posts

    21 Feb, 2019 15:34

    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.
  • Keith

    | 0 Posts

    21 Feb, 2019 15:38

    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.

  • Daniel

    | 0 Posts

    21 Feb, 2019 15:56

    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.
  • Keith

    | 0 Posts

    21 Feb, 2019 16:03

    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.
  • Stacey

    | 0 Posts

    21 Feb, 2019 16:05

    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.
  • Robey

    | 0 Posts

    21 Feb, 2019 17:08

    Athough I have been telling people about this change for months, I still expect a barrage of "why is my pension contribution so much higher this month?" emails from employees next month...

    The principle behind the Pension Act is behavioural: inertia is a powerful force. If people suddenly had to make 5% contributions, almost everyone would opt out. But having started at 1%, then gone up to 3%, then gone up to 5%, most people will stay in.

    What's worth communicating is that, even if your employer pays the minimum 3% and the employee pays the 5%, the employee is financially better off after April. Yes, the take-home goes down fractionally (and I realize that, for many low-earners that's the difference between having a home and not having a home), but overall income goes up.

    Given that most advice is that we should be saving at least 10% of our income towards our retirement, and even this represents only 8%, even if more people opt out, the vast majority will stay in, giving them valuable resources to draw upon in the future.
  • Peter Stanway

    | 0 Posts

    21 Feb, 2019 17:09

    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%
  • Keith

    | 0 Posts

    21 Feb, 2019 17:13

    In reply to Peter Stanway:

    Agree Peter a few years here then another couple of upwards steps.
  • Fiona Mary Palmer

    | 0 Posts

    22 Feb, 2019 11:57

    I have just sent a letter out to everyone affected, detailing what the increase is, and giving an example of how much more it is in terms of their salary payments. I have also said what the company will be paying (which is above the minimum anyway) so that although they are having to increase their payments, we have also shown what the overall e/dd, e/er contribution is.
  • Johanna

    | 0 Posts

    CIPD Staff

    22 Feb, 2019 12:09

    In reply to Daniel:

    no such thing as a silly question on this community Daniel :) A good awareness raising post for us all.