Written by Rachel Hynes, BrightPay Payroll Software: It is without a doubt that auto enrolment has managed to successfully change the public perception of saving. Before the introduction of auto enrolment, just 55% of UK employees were actively saving into a workplace pension. By March 2016, this figure had rose to 78%.

As of October 2017, almost 9 million employees (8,833,000) have been enrolled into a workplace pension scheme as a result of auto enrolment. Along with the other 10.6 million employees who were already active members of a workplace pension scheme at the relevant staging date, it is clear that saving for retirement is now part of the working world.

With auto enrolment, there is a minimum total amount that has to be contributed to a pension scheme by both the employee and the employer. The total minimum contribution is currently set at 2% of the employee’s earnings, with the employer paying a minimum of 1%.

Contributions are being increased gradually over time. From 6th April 2018, the total minimum contribution will rise to 5% with a 2% minimum employer contribution and the employee contributing the remaining 3%.  Minimum contributions will undergo further increases on 6th April 2019, with the total minimum contribution rate increasing to 8% (3% employer, 5% employee). If an employer chooses to pay more than the employer minimum but less than the total minimum amount, then the employee must make up the difference.

New employers who reach their duties start date on or after the 6th April 2018 will immediately be required to comply and implement the total minimum 5% contribution rate. Equally, employers who reach their duties start date on or after the 6th April 2019 will need to comply with the total minimum 8% contribution rate.

Auto enrolment has been very successful to date, with less than 10% of people choosing to opt out. However, there is a concern that opt out rates will rise when employees are asked to put more into their workplace pension.

The Pensions Regulator are currently sending out letters, reminding employers about forthcoming increases to minimum contributions. For employers, there is no legal requirement to send communications to employees informing them of the increases. However, simple and clear communication will make it easier for staff to understand the phased contribution rates.

Your payroll software should easily and automatically calculate the phased increases for you. It’s important that you check that your chosen pension scheme and payroll software can support the phased minimum rates.

Written by Rachel Hynes, BrightPay Payroll SoftwareExhibiting at Accountex Summit North on stand 34.


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