The Automatic Enrolment of employees into workplace pensions has been a greater success than many predicted when it was introduced in October 2012.
To date, more than nine million employees have been automatically enrolled into a workplace pension and more than 900,000 employers have complied with their auto enrolment responsibilities. Total annual contributions into workplace pensions reached a ten-year high of £87 billion in 2016.
Now, with that framework firmly established, the government has turned its attention to the next developments for workplace pensions and its leading ideas are:
- The minimum age at which auto-enrolment begins should be reduced from 22 to 18 – this will bring another 900,000 young people into auto enrolment –no bad thing, in our opinion.
- The contribution structure would change – the proposal is that once the earnings trigger – £10,000 for 2017/18 and 2018/19 – is reached, the contribution percentage paid by employers and employees would be based upon all earnings – not just earnings exceeding the lower earnings limit (£5,876 in 2017/18 and £6,032 in 2018/19). The upper earnings limit (£45,000 in 2017/18 and £46,350 in 2018/19) would still apply to cap contributions. In current terms, the effect would be to increase contributions for an individual earning £26,000 by nearly one third.
- The government will test “targeted interventions … to identify the most effective options to increase pension saving among self-employed people”. Only 16% of the self-employed were contributing to a pension in 2015/16, a large gap in pension coverage given they now number 4.8 million (15% of the workforce).
The age and contribution reforms are pencilled in for the mid-2020s.
This delay, which has attracted some adverse comment, may reflect the fact that the current contribution rate of 2% (of which the employer must pay at least 1%) will rise to 5% (2% from the employer) in April 2018 and to 8% (3% from the employer) a year later.
Ryan Marshall, Independent Financial Adviser at Pembroke Financial Services of Shoreham says “Interestingly, in a foreword to the government paper, they acknowledge that, even at a level of 8%, these contributions are unlikely to give all individuals the retirement to which they aspire. In other words, for all the government’s efforts to push automatic enrolment, you still need to assess the effectiveness of your own retirement plans.”
Please call us if you need to discuss Workplace Pensions or require more general, but personal, Pensions advice. Call 01273 774855 or email us by clicking here.
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