Auto-enrolment – Are you up to speed with the changes?

Auto-enrolment has been with us for a number of years – the exact timing depending on each employer’s staging date.  The Pensions Regulator confirmed recently that since its introduction 9.3m people are now investing in a private pension scheme as a direct result of auto-enrolment.  This means that any change to the way the scheme operates is going to have an impact on a large number of employers and their employees.

Well this month saw such a change…

Up until 5 April 2018 all employers were required to contribute 1% of the qualifying earnings of eligible employees into a pension scheme.  The employees themselves also had to contribute 1% of their qualifying earnings.  These rates increased for the new financial year starting this month such that the minimum contributions of qualifying earnings are 3% for employees and 2% for employers.

Contributions are scheduled to increase further from April 2019 with the rates are set at 5% for employees and 3% for employers.  The Pensions Regulator has confirmed it will review the level of contributions once it reaches these levels, but further increases do seem likely.

There are other proposed changes in the pipeline, including reducing the minimum age criteria from 22 to 18 and reducing the level at which pension contributions kick-in from the current NI lower earnings limit (for 2018/19 this is £6,032 per year) to nil.  Both of these measures will see contributions into private pension schemes increasing.

As the level of contributions increase employers may consider setting up a salary sacrifice scheme such that your employees sacrifice salary equal to their contribution while you make the full pension contribution on their behalf (8% from 2019/20).  This doesn’t change the net tax position of the employee, but there is potential NI savings for both the employer and the employee.

This can be a tricky area for employers with hefty penalties in place for those that don’t fully comply.  If you engage an external supplier to run your payroll, whether this is your accountant or a payroll bureau, then they should be liaising with you regarding some of these changes.  If not and you are concerned about any aspect of auto-enrolment then please get in touch.