How will you be preparing your employees for an increase in their pension contributions?
Why are pension contributions increasing?
Automatic enrolment has been successful in getting millions more people saving into pensions. Over 8 million people are now in a workplace pension as a result of auto-enrolment. However, the contribution levels that the government set for both the employer and employee were always intended to increase over time. This is because the starting level of contributions under auto-enrolment would be unlikely to provide an adequate pension for most people living in the UK.
When the government introduced automatic enrolment, it set a total minimum contribution level which had to be paid into your workplace pension. Employers have to fund a certain amount of this minimum contribution.
From 6th April 2018, the government has legislated that the total minimum contribution to be paid into the workplace pension is increased to 5% of qualifying earnings, of which employers have to fund a minimum of 2%. This means employees will have to the remaining 3% to get to a total of 5%.
If your company uses a different definition of earnings, the minimum contributions could be different; for example, employers using Basic Pay will see the total minimum contribution increase to 6%, of which they have to fund at least 3%.
If your minimum contributions need to increase, it’s important that you explain these changes to your employees. Many of your staff may be paying the minimum of 1%, and so will see their pension contribution tripling from 6th April this year. As well as stressing the importance of continuing to save into a pension, your employees may benefit from knowing that that tax relief means that their 3% is actually only costing them 2.4% if they are a basic rate taxpayer, as the government makes up the other 0.6% by giving you the tax back on the contribution.
If you’re already paying more than the required minimums, and you don’t need to take any action in April, this might be a good time for you to promote this to your employees and demonstrate how they benefit from the higher contributions.
How can Ink help?
We’re working with our clients to help you communicate the changes to your employees. We can run on-site presentations, send tailored employee engagement emails, provide draft text for payslip inserts, or help with other worksite marketing, such as posters. For more information speak to your Account Director at Ink, call us on 01858 810200 or email firstname.lastname@example.org.
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