Auto-enrolment has been hugely successful at encouraging increased numbers of people to save towards their retirement. Part of the transitional arrangements which were integral to auto-enrolment were the stepped contribution rates. Initially the total minimum contribution rate was 2% (with at least 1% of that paid by the employer). The total minimum contribution rate increased on 6 April 2018 to 5% (with at least 2% of that paid by the employer). The next step-up in contributions occurs next month, on 6 April 2019, when the total minimum contribution rate will increase to 8% (with at least 3% of that paid by the employer).
What should employers do in anticipation of the step-up in contributions?
- ensure your payroll facility (whether conducted in-house or by a third party provider) is aware of the need to increase contributions (this is likely to involve a pro-rata calculation for April if your pay period runs from 1 April, or indeed any other date before 6 April 2019);
- ensure the company has sufficient cash in the relevant account to meet the additional outgoings; and
- consider whether you need to (and even if you don’t need to, whether you should) communicate with your employees regarding the upcoming step-up in contributions. If you previously told your employees that contributions would increase on 6 April 2019 then there is no need to write to them about the forthcoming step-up, however, you may still wish to do so as your last communication may have been some time ago and many may have forgotten. If you haven’t told employees that there will be a step-up in their contributions then you should do so as soon as possible to give them sufficient advance notice that their take-home pay will reduce as a result of the increased contribution.
Mitigating the increased cost to employers
The increase in contributions represents an increase in cost for employers, many employers have already considered offsetting these costs by:
- making changes to the way they structure increases in pay; and/or
- implementing salary sacrifice.
If you haven’t considered these options before, but would like to, please do get in touch, our experts can help you ascertain what cost-saving steps might be the most appropriate for you, and help you with implementation, including the provision documents and letters to ease the process.
Our Employment and Pensions and Employee Benefits teams have a wealth of experience in dealing with complex employment arrangements, particularly for high-paid executives, and can work alongside you to create imaginative benefit structures which not only ensure your goals with regards to benefit provision are achieved but your auto-enrolment obligations are satisfied. Please do get in touch if you have any questions!