If you are an employer, there is a strong chance that you will have encountered Workplace Pensions (also known as Auto Enrolment Pensions). These are the mandatory pension schemes introduced by the Government in 2012. They have been successful in introducing millions of employees to pension schemes over the last 6 years.
To date, the minimum contributions have been quite modest. Employees have had to contribute 1% of their qualifying earnings (earnings above £5,876 p/a) whilst benefitting from tax relief. Employers have also had to contribute 1%.
However, the contribution rates are increasing. With effect from 6 April 2018, the employer’s contributions will increase to 2%, whilst the employee’s contributions will treble to 3%.
That’s not all. In addition, the contribution rates are set to increase again from 6 April 2019. Employers will have to contribute 3% and employees will have to contribute 5%. For employees, that’s a five fold increase from current levels.
So far, there have not been many employees who have opted out. This has been heralded as a success of Workplace Pensions. However, it is anticipated that employees may change their minds when the contribution rates rise. Although they will actually benefit from higher employer contributions, they will see a drop in their take home pay from their higher contributions.
The initial letters which you will have sent out should have highlighted the fact that contributions would increase. However, it would be a good idea to remind employees of this fact. This would allow them to take action sooner rather than later.