Workplace Pensions: contribution rate increase
April 6, 2018
By Ginevra Gatrell, Pensions Partner at gunnercooke
From today, 6 April 2018, the total employer contribution rate to workplace pensions will increase from 3% to 5%, with the minimum employer component increasing from 1% to 2%.
In 2012, the government introduced Automatic Enrolment (AE). At the time it was ground-breaking, as for the first time in the UK there was a legal obligation on employers and workers to contribute to a pension arrangement. AE has been phased-in over five years, starting with the UK’s largest employers. Today, almost all UK employers, with limited exceptions, are now required to comply with automatic enrolment and ensure that at least the minimum statutory employer and employee contributions are paid to an automatic enrolment scheme or a qualifying pension scheme. More and more workers are now making pension savings, and from a young age.
AE however, is not without its critics. One view is that the AE contribution rates alone are not high enough to ultimately provide a sufficient pension in retirement. However, the statutory minimum contribution rates are increasing and from 6 April 2019, the total contribution rate will further increase from 5% to 8% with the minimum employer component increasing from 2% to 3%. The government is also currently considering extending AE to include workers under age 22, so that contributions would be payable on all earnings below the upper earnings limit (currently £46,350). If implemented, employers will need to include these additional payroll costs in their financial forecasts. It will also be interesting to see whether these increases will cause more workers to opt-out to avoid paying the higher employee contribution rates out of their income or whether the increased employer contribution will cause more workers to engage with pension savings.
If you have any queries with regards to the information above or any other pension scheme matters, please do not hesitate to contact a member of the gunnercooke Pensions Team.
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