From Friday 6th April, employers and employees will be required to increase contributions into their Qualifying Workplace Pension Scheme.
The total overall contributions will rise from the current minimum of 2% of qualifying earnings to 5%; as at April 2019, they will increase again to a minimum of 8%.
These increases will impact about a million employers and 9m people in the UK, while a further 150,000 employers are expected to sign up by June this year.
Elliott Silk, head of commercial at Sanlam UK, warns that if employers fail to engage with their workforce on the benefits of increased contributions, there is a risk that the number of people opting out of the valuable workplace pension scheme could rise.
He said: “Automatic enrolment has been a valuable and successful exercise in getting the nation saving towards their retirement. However, more needs to be done by employers and the government alike to ensure all the hard work is not undone by inertia.
“What we don’t want to see is people waking up and questioning why their pay cheque is less than last month without having prior knowledge of the increase. If we provide people with information ahead of the deadline, we can help them realise the value of these contributions and the impact they could have on their future lives in retirement.
“There is also an opportunity to educate people on the true cost of retirement, and while automatic enrolment is helping more people to save, the reality is that the contribution levels are still some way off the amount required to live a comfortable lifestyle in retirement.”
Mr Silk outlines five actions that employers and workers can take ahead of the deadline:
Tips for Employers
- Ensure that you have budgeted for employer pension contributions increasing from at least 1% of earnings to 2% of earnings
- Consider how the increase in pension contributions align with any forthcoming salary reviews
- If you haven’t already, start communicating the forthcoming pension increases to workers to give them enough time to financially prepare for any changes to their monthly income
- Speak with your pension provider and/or advisers to see how the increase in contributions will be managed
- Ensure your payroll staff are aware of the April increases and the extra workload that may be generated
Tips for Workers
- Have you budgeted for the April increase in your pension contributions from at least 1% to 3% of your earnings?
- Are your contributions based upon basic salary, qualifying earnings, or total earnings? You will need to know this in order to calculate the additional cost to you
- You may wish to speak with your employer in advance of April if you don’t feel that you can afford the increase – they may decide to stop their contribution if you can’t pay the higher percentage
- Check the current value of your pension plan, as this will demonstrate how valuable auto-enrolment has been to you
- You also need to budget for the next increase that takes place in April 2019 at which point you will need to be paying 4% of your earnings whilst your employer will need to contribute at least 3% with the Government adding another 1%