Automatic enrolment is not just about paying the right contributions, pension schemes need to ensure they have appropriately communicated with their employees and that the scheme remains fit for purpose. Since the introduction of automatic enrolment, there have been many changes in pension legislation, not least greater freedom in how people can use their retirement savings. It’s worth considering how well your pension scheme has kept pace with these changes and whether it still meets the employee’s needs.
• Minimum payments will increase from 6 April 2018 and again in 2019
• The change is an employer responsibility
• Salary sacrifice, flexible benefits or contractual enrolment could complicate matters
• Check your pension scheme is still fit for purpose
• Ensure your employees understand and value their pension
Ken Anderson, Head of DC Solutions at Xafinity Punter Southall said: “Many employers will have been made aware of the increase in minimum contributions into an employee’s automatic enrolment pension to 2% from 6 April 2018 and again to 3% in April 2019, but this is not all they need to be aware of.
The definition of earnings will have an impact on the minimum contribution increases, depending on which definition the employer choses to use. The majority use a statutory definition of ‘earnings’ which are ‘band earnings’. These include salary, wages, commission, bonuses and overtime. Other employers choose a different definition of earnings such as ‘gross earnings’, ‘at least 85% of total earnings’ and ‘all earning’, each varying the minimum payment increases.”
Ken Anderson continues: “There are also some checks pension schemes will need to ensure are completed before 6 April 2018. Some employers specified the certification period included one or both of the increases in the minimum contribution levels. If they did this they need to be ready to calculate and deduct the increased amounts. Other employers chose to certify at the higher increased amount for the whole certification period, if they have not done either of these, then they may need to end the certification period early and re-certify from 6 April 2018.
Employers who use an outsourced payroll service need to check they are ready for the increases and make sure they know when to deduct them. If payroll is done in-house, employers need to be certain their software is ready for these increases.”
Ken Anderson concludes: “The scheme rules or terms and conditions will need to reflect the increases in the minimum contributions. It’s important your workplace pension scheme can support the contribution increases otherwise it may no longer be a qualifying scheme for automatic enrolment. Increases in minimum contributions are just part of the legislation. Employers are also required to provide an appropriate qualifying scheme for their employees.
Depending on what you have told your employees so far, you may have to consult with them about the increase in the minimum contributions. Either way, it is good practice to engage with employees and something you may want to consider doing, after all it is important they understand the changes and value the benefit you are providing them.”
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