With more changes on the way in 2018, companies need to be asking themselves “Are we ready?”
In less than a year the first big change to auto-enrolment (AE) is going to take place – contribution levels are going up. Currently a minimum of 2% of qualifying earnings gets paid into an employee’s workplace pension. Typically that’s 1% by the employer and 1% by the employee. But in April 2018 that’ll rise to 5% of qualifying earnings, likely made up of 2% from the employer and 3% from the employee.
It then goes up again just a year later, hitting 8%. Likely 3% from the employer and 5% from the employee – and these increases mustn’t be overlooked by either payee.
Here at Aviva we’ve just published our Working Lives report and, encouragingly, over half of businesses surveyed didn’t think the AE increases would have an impact on them. 29% of businesses said they were already contributing above the rate of the planned increase, while 25% felt it would have no impact.
That does still leave 46% of businesses feeling that AE increases are going to create some kind of challenge though. 20% of firms said it’d impact pay increases, while 17% said they’d 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’s clearly a 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’d definitely continue to pay into their workplace pension and only 4% said they’d definitely leave – that’s a pretty positive outlook at this stage. However, a further 12% said they’d at least consider leaving and 34% said they were undecided.
Businesses need to start planning for these increases now. They need to look at their balance sheets and work out how they’re going to cover the costs. Auto-enrolment isn’t optional, and when used in the right way a quality workplace pension can potentially 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’ll be paying in five times what they are today. This should be seen as good news – they’re setting themselves on the path to a more comfortable retirement. But without encouragement and information from their employer, that message might not get through.
lt’s key to prepare for these changes. Don’t be get caught out, be ready months in advance so you can maximise the positive outcomes for your business.
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