It may have taken some time but finally we have confirmation of the planned changes to auto enrolment contribution rate increases. The 2015 Autumn Statement provided a proposal to push back the original contribution increase dates to help businesses administer changes and align them with the tax years.
The total minimum contributions for workplace pensions had been due to increase in October 2017 with a further increase in October 2018 however, it has been confirmed these rises are now set to take place in April 2018 and April 2019. Employers can of course offer higher contributions at any time avoiding the need for future change and further employee communications.
The tables below show the minimum required contribution schedule for the two most commonly used definitions:
In a time of economic uncertainty, for many employers who currently pay the minimum contribution levels, the delay in having to make the required step-up will be welcome news. For employees who will have their increased employer pension contributions deferred however, this is perhaps not the outcome they were looking for and is likely to have longer term implications to their fund value and future retirement wealth.
As advisors, we welcome confirmation of the increase dates as it allows us to provide businesses guidance and budget planning with greater certainty, although, there is no doubt it will have a financial impact on the very employees that auto enrolment was primarily aimed at.