Auto-enrolment was first proposed by the Pension Commission to address the employee ‘under-saving’ issue as far back as 2005. At that time, it could never have been envisaged that as little as 1% of the earnings of low paid workers would be going into their pension pots for the first five years.
However, the 2011 delay to staging dates and phasing followed by the recent government announcement of its intention to delay the next two scheduled increases of the minimum defined contribution pension contribution rate by six months each (to align these changes with the start of the tax year) will have exactly this effect.
Instead of the defined increases taking place in October 2017 and October 2018 as planned, they will now occur in April the following year in each case. Whilst, taken at face value, this recent announcement may seem like good news for employers as breathing space to push back expenditure in further deferring mandatory pension contribution levels, it potentially introduces unforeseen consequential problems.
As employers automatically enrol staff, they are required to inform them what contributions will be paid, including when contributions will increase in future. Employers who have commenced the process using The Pensions Regulator’s templates will have informed their staff that contributions will increase in October 2017 and October 2018. However, it has not been made clear whether employers can now change this published arrangement without consulting their employees.
Moving the goalposts in this way has caused further unwanted and unnecessary confusion for employers making planning for future expenditure even more difficult. For employees, the consequential effect is a further erosion of personal pension savings and a false sense of security regarding their individual retirement planning.
Should you envisage difficulties with your business planning regarding the necessary financial provision for future commitments, then a discussion with one of our experienced practitioners may be appropriate. Contact us.