Pre-Christmas news

The government announced the results of the auto-enrolment review on 18 December 2017. However, they will not be implemented until the 2020s as the government wishes to assess the outcome of the contribution increases in 2018 and 2019. There is also a desire to carry out further work on the adequacy of retirement incomes before making any further decisions on contribution rates.

Future contribution rates

The review acknowledges that the current total savings of 8% from April 2019 will be insufficient to provide a satisfactory income in retirement. The report also notes research from the independent Pensions Commission, which identified that the state pension and auto-enrolment contributions of a total of 8% of qualifying earnings would deliver around half of the level of savings needed to provide adequate retirement income for most people.

Auto acceleration

There have been suggestions that implementing further increases to reach the desired level would have to be via auto-acceleration – which would require both employer and employee to increase their pension contributions every time there was a salary increase. There is, however, recognition in the report of the cost burden that has already been faced by employers implementing auto-enrolment due to the competing demands of the national minimum wage and the apprenticeship levy.

Age and earnings threshold to drop

The auto-enrolment age threshold will be lowered from 22 to 18, and all earnings from pound one will be treated as qualifying earnings. There will remain an upper limit to the qualifying earnings band that will still be the upper earnings limit for NI. This acknowledges that as contributions are calculated only once an individual reaches the lower earnings limit, lower earners are missing out on a potentially significant amount of contributions and tax relief. As earnings are not aggregated across multiple employments, an individual who earns ?10,000 in each job will not be auto-enrolled even if in aggregate their earnings exceed ?10,000.

Savings v pensions – the sidecar model

The government is concerned that the growth in consumer debt presents a challenge to the auto-enrolment policy. Should those on low incomes be saving into a pension or putting money aside into more accessible savings so they are more financially resilient? To this end, NEST is developing what it calls the sidecar model, where employees are encouraged through their employer to deposit money into an accessible savings fund which then overflows into their pension when it has reached a certain level. It will be trialling this model with some larger employers in 2018.

Staging is complete

Auto-enrolment staging will be completed in February 2018. Since October 2017 there has been an overlap with new employers having immediate ?duties start dates? as soon as the first employee is notified on the full payment submission, whilst at the same time employers who were in business by 30 September 2017 have staging dates that run until February 2018. Staging dates and duties start dates will still be relevant in establishing the first re-enrolment date, which continues to have a six-month window, three months before and three months after, the third anniversary of staging or the duties start date.

Pro advice – is there anything to worry about?