The wonderfully titled Employers’ Duties (Implementation) (Amendment) Regulations 2016 change the dates, set out in the 2010 Regulations, for increases in the minimum level of contribution for pensions auto-enrolment (AE). The scheduled dates are changed to align the increases with the beginning of the tax year.
As a result, the increase that was planned for October 2017 to 5% minimum contribution (2% employer), is postponed to April 2018, and the planned increase from 5% to 8% due in October 2018 will be postponed until April 2019. The Government estimates it will save £390m in tax relief costs in 2017/18, and £450m in 2018/19 through delaying auto-enrolment rate increases.
The Government has said the change will benefit the smallest employers in particular. Some commentators have linked it to an attempt to reduce the pressures on businesses as a result of the new national living wage. The good news for employees is that, aligning to the tax year will make it easier for some employees to plan their retirement saving for the year ahead.
The latest Compliance and Enforcement bulletin was released by The Pensions Regulator (TPR) at the end of July, based on figures reported at the end of June 2016. It tells us that:
- More than five million people have been auto-enrolled into a pension, which is 66% of all employees in the UK compared with 47% in 2012
- The average employer contribution into a new AE scheme is 3%
- To the end of June 2016, 110,000 employers have completed their Declaration of Compliance, and nearly 60,000 of these employers are either small or micro employers
- Opt-outs have been low, which means that the number of people saving for their retirement is at its highest point since 1997
Action against companies failing to meet auto-enrolment requirements has increased by 300% to 8,812 occurrences, as smaller employers have struggled with their requirement to sign their staff on to pension schemes. The report also attributes the increase in enforcement to smaller employers inevitably being less prepared. Nevertheless, the first group of small and micro-employers subject to pensions auto-enrolment deadlines, achieved a compliance rate of above 95%, said the watchdog. Of the employers who still face auto-enrolment deadlines, approximately 57% are micro-employers and 42% are small employers.
The Pensions Regulator’s formal powers include issuing compliance notices, conducting inspections, and issuing penalty fines to employers. Escalating penalties can be given to businesses that fail to comply with initial warning penalties; they accrue at a daily rate of £50 for micro-employers, and £500 for small employers.
Whilst the delay in contributions is good news; with an aging population and increasing life expectancy, auto-enrolment can only succeed if people and employers start putting more money into their pension pots, to fund them through their retirement. The objective of AE was to provide access to a tax effective means of retirement saving for employees, so it has been a resounding success for the millions of additional employees who have a pension who didn’t have one in 2012. Although a 3% employer contribution will not mean that the job is done, or that retirement will be one long luxurious holiday for all, this means that not all employers are defaulting to the minimum 1% employer contribution.
It is still early days, and the research evidence and experience suggests that the current processes and solutions are far from perfect. But a good start has been made. Among those who have yet to go through auto-enrolment, some are predicting negative consequences of the pension changes, in terms of employment and pay. However, of those who have already gone through automatic enrolment, few report that there are significant extra costs, while many report that they have been able to absorb the additional expense. It requires some planning to be successful and compliant. We would echo the CIPD’s experience that when implemented and communicated effectively, there are positive benefits to be gained. These include having a scheme aligned to a businesses objectives and its culture. It helps if it is also aligned with reward packages and meets the needs of employees.
Our Consultants would be pleased to assist you on any element of the issues arising from this newsletter.