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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

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