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Government publishes further auto-enrolment pension plans

20 December 2017

Government has published a review, Automatic Enrolment Review 2017: Maintaining the Momentum, that explores ways to develop auto-enrolment further and contains several progressive recommendations to workplace pension saving, which will be legislated for, where necessary, to further change the financial behaviour of the millions of people who now view pension deductions as part of their pay package.

According to statistics, since automatic enrolment was introduced in 2012, workplace pension participation has increased among eligible employees from 55% in 2012 to 78% in 2016, with 9 million individuals now automatically enrolled into a workplace scheme by their employer.

The total annual contribution into workplace pensions is at a ten-year high with £87 billion being saved in 2016. The roll out of automatic enrolment will be complete by 2018 and it is estimated that around 10 million people will be newly saving or saving more.

In order to continue the progress of auto-enrolment, and ensure that the millions of pension savers continue to save once the minimum contributions reach 8% in 2019, the Department for Work and Pensions have made the following recommendations; -

  • The age threshold for automatic enrolment to be lowered from 22 to 18 to ensure that saving for retirement is a normal part of starting work.
  • Remove the  lower earnings limit (the amount you earn before pension contributions are calculated, which is currently set at £5,876) so that contributions are calculated from the first pound earned – meaning that all employees will have access to a workplace pension with an employer contribution.
  • The report recognises that there are 4.8 million self-employed people in the UK and plans to test a number of different approaches aimed at increasing the pension savings of the self-employed from 2018 with low to moderate incomes. Further proposals will then be set out to begin implementing the most effective approaches.

Government are seeking to introduce the reforms in the mid-2020s.

Whilst automatic enrolment has been a success to date, the review has identified that there are still challenges which remain. A number of significant strategic problems have also been set out in the report; -

  1. The current saving levels under the auto-enrolment scheme mean that a significant proportion of the working-age population will not meet their retirement expectations. Employers also face the increasing burdens of increased costs in relation to the National Minimum Wage (“NMW”) and National Living Wage (“NLW”). The Department for Work and Pensions recognises that in order to address these challenges, there must be a realistic and fair balance between the cost to employers, individuals and the public finances.
  2. Under the current design of auto-enrolment, most self-employed individuals are not covered and so, a large proportion of self-employed individuals experience gaps in their pension coverage and other savings for retirement.

Aspire Comment

Remember, the first increase in contributions rates comes into force from April 2018;

 

Minimum employer contributions %

Worker contribution %

Total contribution %

Oct 2012 to March 2018

1

1

2

April 2018 to March 2019

2

3

5

April 2019 onwards

3

5

8

If you are concerned that you are not meeting your auto-enrolment requirements as an employer or if you need assistance in understanding your obligations, please give Aspire a call to discuss how we can help.