Workplace pensions – is it about to get ugly?
With contributions set to increase significantly in April 2019, might we be about to see an employee stampede for the exit? One that would undo much of the good work to date in getting us all saving for our retirement?
The increase is likely to be a bridge too far for many employees as they see their levy rise to 5% having started at just 1%. While the smaller deduction was largely accepted by most of the workforce and so hailed as a success story, a twentieth will compete with the household’s other needs - from groceries to mortgages.
The employers’ challenge:
Whilst commentators are only guessing at the scale of the opting out after 5 April, what is it likely to mean to you as an employer (or adviser)? As well as meeting the 50% hike in employer contributions in most cases to 3%, you’ll have to deal with the extra admin of processing lots more requests to opt out. Notifications should not really come directly to the employer, and for many schemes such as NEST and The People’s Pension they are lodged directly with the pension provider. As employer you then have to identify these and make timely amendments in your payroll and AE assessment records. There’s the added complication of deciding what to do about employees who want to continue contributing but can’t afford the increased amount.
What does it mean to OptEnrol users?
OptEnrol will be able to cope with the increased activity.
Firstly it dynamically uses the PRP dates to select the rates for each tax year and produce correct contribution calculations. For many pension providers it automatically gathers the opt out request dates to flag the employee records, amend contributions and issue relevant employee communications. Employers can choose as a default to have their own contributions continue or cease.
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