Changes to Workplace Pensions

by Kristen

A review group looked at workplace pensions (auto enrolment) to examine whether it’s working properly and whether it could be adjusted to get more low earners saving more into pensions. We look at what the main results of the review, published in January 2018, could mean for auto enrolment schemes.

What are the proposed changes?
Upper and lower minimum contribution thresholds
As expected the band of earnings on which minimum contributions is based will change in line with National Insurance thresholds which are £6,032 to £46,350 for the 2018/19 tax year.

Removal of the lower contribution earnings threshold
At the moment, auto enrolment minimum contributions are based on a band of earnings in line with National Insurance Contributions thresholds. Removing the lower amount will mean that minimum contributions will now be due on the first pound of earnings although the upper cap will remain. Workers will benefit from increased pension contributions and it is hoped that people with multiple jobs will be more likely to save. For employers with schemes set up on the minimum contribution level, it will mean an increase in cost. Where an employer uses a different contribution structure for their scheme, this proposal should have little or no impact.

• Reduction of the auto enrolment age
This will mean employers will have to automatically enrol workers from age 18 instead of age 22. The hope is that by saving longer in an auto enrolment scheme, they will build up bigger pension pots. In addition, auto enrolment administration will become simpler. Employers however might see an increase in their contribution costs, especially if they have a lot of younger workers as they will have to pay contributions for them if they don’t already.
When will the changes happen?
The Government will consult on how to introduce the changes over the next few years with a view to introducing them in ‘the mid-2020s’.

What hasn’t changed?
• The auto enrolment earnings trigger
The review concluded that there is currently no need to change the auto enrolment earnings trigger of £10,000 although it will now be reviewed every year to make sure the level is sustainable and meets its objectives.

• Contribution increases beyond 8%
Government will monitor the minimum contribution increases in 2018 and 2019 to inform if or how consideration should be given to further increases in the future. So, there are no firm plans at the moment.

What can employers do?
Frankly not a great deal can be done to influence change of Government policy on this however employers can recognise that this may lead to higher pension costs in the not too distant future and may wish to take some advice on how they can prepare their business NOW for that increase.

Red Star Wealth has many years of experience providing pension scheme advice to employers, including the set up and administration of auto enrolment pension schemes and can provide independent and personalised advice on what are the best options for YOUR business.

Call the office today on 01253 486346 or email us for an initial meeting without cost or obligation.

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