It’s been seven years since auto-enrolment pensions were introduced and this April marks the last scheduled increase to minimum pension contributions, which will mean employees saving around 5 per cent of their earnings and employers contributing at least 3 per cent. So if the average worker is on £30,000 per annum, they will see their annual take-home pay reduced by £253. Under the Pensions Act 2008, it’s an employer’s responsibility to action the increases.
The entire auto-enrolment pension plan has been rolling out for 12 years, and while great progress has been made, with 10 million people enrolling into a pension scheme over the last few years, there’s still a way to go.
The Office for National Statistics found in 2018 only 63% of eligible employees were aware that they had been automatically enrolled into a workplace pension. And 37% of new savers are unaware that they are now in a pension scheme, meaning these people are unlikely to make any advancements to improve their retirement savings.
Your responsibilities as an employer
Pension advisors need to ensure that employers are continuing to meet their auto-enrolment responsibilities so that staff receive the contributions they are entitled to.
It’s not currently a legal obligation for employers to tell their staff about the increases in contributions, but it’s encouraged. Employees should be well aware of all the benefits that come with the auto-enrolment pension scheme. If you fail as an employer to comply with ongoing responsibilities, including keeping accurate records and checking the correct contributions are being made then you could face a financial penalty or court action.
Employers and employees can choose to pay more than the minimum contributions if they wish. Or, the employer might decide to pay the total minimum contribution, which means their employees don’t have to make up the shortfall and might not need to pay into the pension at all.
When you are making contributions, you need to consider salary, wages, bonuses, overtime, sick pay, maternity/paternity pay and commission. If, as an employer, you have agreed with your pension scheme to base your minimum contributions on various elements of staff pay then you need to apply different increases when the rise in minimum payments is implemented in April 2019.
How can I work out what the minimum contributions are?
You can use an online employer contributions calculator to work out the minimum contributions that you and your staff members must pay into their auto-enrolment schemes.
If you haven’t yet made your team members aware of the changes then it’s important to do so. Your pension scheme provider may have also written to your staff explaining to changes.