Pension Auto Enrolment

One of the biggest changes to pension legislation in recent history is now well underway, and yet I still get the overwhelming feeling when I speak to people, that they really don’t know a lot about it, and worryingly, many are employers!

The Government previously estimated that about 11 million people were not saving enough for their retirement, and from that Auto Enrolment was born.

Many employers will already have received official notification of their staging dates, but many more will be receiving them in the coming months. From that staging date, those employers will have to automatically enrol all eligible employees in a qualifying pension scheme and make contributions to their plan.

Preparing for the changes in the law will involve pensions, finance, HR and IT departments, and it will be necessary to provide the entire workforce with information about how they are affected by these changes.

These changes raise a number of specific issues which could have a financial impact on the business, for example, if there is an existing scheme in place is the minimum contribution rate higher than currently being paid? or is it calculated on a different basis? Are your systems able to cope with this extra burden?

Minimum contributions for employers start at 1%, and by October 2018 this will increase to 4% for employees. This is likely to equate to a total of 8% of a certain band of earnings and will be made up of 3% employer, 4% employee, and tax relief of 1%. Employees do have the option to opt-out.
This is intended to radically alter the way we save for old age; Initial research had suggested that less than a third will opt-out. A year on, NEST have suggested this figure has been more like only 10%.

I am sure you will appreciate this is a massive change to pensions as we know it. This is going to affect everyone to some extent, employers AND employees! But at the end of the day, there is a reason for this, we are living longer, and saving less for retirement than ever before!

If you are an employee then recommend that you ask your employer what plans they have put in place, and if you are an employer reading this, I suggest that if you haven’t already taken steps to make a plan, do it now. There may be a problem as yet unseen by many, and that is that setting a scheme up isn’t a simple task, it can take many months. Penalties will be severe for employers that don’t comply, so don’t just ignore it.

If you want to discuss this or any other issue, please give me a call.

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