By Dale Critchley, Policy Manager, Aviva
Currently a minimum of 2% of qualifying earnings gets paid into an employee’s workplace pension. Typically that is 1% by the employer and 1% from the employee.
But in April 2018 that will rise to 5% of qualifying earnings, likely to be 2% from an employer and 3% from the employee.
And it goes up again just a year later. In April 2019 contribution levels hit 8% - 3% from the employer and 5% from the employee.
These aren’t increases that can be overlooked by either employer or employee. Aviva just published its Working Lives report and encouragingly over half of businesses surveyed did not think the AE increases would have an impact on them. 29% of businesses said they were already contributing above the rate of the planned increases while 25% just felt it would have no impact.
But that still leaves 46% of businesses feeling that AE increases are going to create some kind of challenge. 20% of firms said it would impact pay increases while 17% said they would have to cut costs elsewhere in the business. Worryingly, 9% said they didn’t know what impact the increases would have and 2% didn’t know there were any increases coming.
There is clearly a really mixed picture across UK companies when it comes to preparations for the next stage of auto-enrolment.
But what about employees? Again, encouragingly half of those surveyed said they would definitely continue to pay into their workplace pension and only 4% said they would definitely leave. That’s a pretty positive outlook at this stage. However, a further 12% said they would at least consider leaving and 34% said they were undecided. That is a significant number of people who still aren’t convinced that a workplace pension is a good idea.
Businesses need to start planning for these increases now. They need to look at their balance sheets and work out how they are going to cover the costs. Auto-enrolment isn’t optional and when used in the right way a quality workplace pension can be a powerful recruitment and retention tool.
Employers also need to guide their employees through this. With thousands of people currently only paying in 1% of qualifying earnings, opt out rates have remained at below 10%. Next April contribution rates will treble for employees and by April 2019 they will be paying in five times what they are today. This should be seen as a good news story – they are setting themselves on the path to a more comfortable retirement. But without encouragement and information from their employer, that message might not get through.
Doing a few sit ups the day before you go on holiday is unlikely to give you a 6-pack to show off on the beach. If you want that toned look then you need to sort out your diet and exercise regime months in advance. The same goes for getting auto-enrolment ready – early preparation is key.
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