Automatic enrolment has been around since 2012, and many employers will now be or about to be going through the re-enrolment process. Employers should not find this difficult because it is largely a repeat of the original auto enrolment process carried out three years ago. Where most of the employees are already in a pension scheme, re-enrolment will require little work from the employer.
Some further good news for employers is that there is no need to re-enrol anyone who has opted out in the 12 months before the re-enrolment date nor employees who are working their notice period. Those who have Lifetime Allowance protection are exempt too.
Finally, there is flexibility over the re-enrolment date, which can be three months either side of the three-year anniversary of the employer’s original staging date.
Increase in contributions
Perhaps of more interest to employers and employees is the increase in the minimum level of contributions as set by auto enrolment regulations.
Many employers and employees currently pay these minimum rates and they will increase in April 2018 and again in April 2019. The rates depend on the definition of pay used to calculate the pension contributions but, broadly, employers will see the minimum rate increase from 1% to 2% and then 3% in 2019, while employees will see their minimum rate increase from 1% to 3% to 5% in 2019.
Employers will need to be aware of the revised rates for budgeting purposes and ensure that their payroll software/provider is updated too so that the correct rate of contributions can be paid to the pension arrangement. Employers should also communicate these changes to their employees in advance so it does not come as a surprise when the rates increase.
Pensions Dashboard
Even with the increase in the minimum rate of contributions the amount being set aside for retirement savings is nowhere near enough to ensure that an adequate income is provided in retirement.
One useful piece of legislation that will help individuals keep tabs on their pension is the introduction of the Pensions Dashboard, which has the ambitious target of being ready by 2019.
The Pensions Dashboard will show an individual detail of all the private pension arrangements that they have in place along with their State Pension. As the average number of jobs in a working life in the UK now stands at 11 it will help to provide all who have more than one pension arrangement with an indication of the overall income they could expect in retirement.
This will provide individuals with:
• A better understanding of their likely finances in retirement, based on their current situation.
• A clearer grasp of the need for expert financial advice.
• More inclination to take a proactive role in managing their retirement.
• Most importantly, the understanding not to opt out of their employer’s pension scheme when contributions are increased and motivate them to further increase their pension contributions, subject to their budget constraints.
The latter is a hope, you may say, but from my knowledge of the pension industry it is a necessity.
Stuart Price, Partner and Actuary at Quantum