Employers support ‘small increase’ in AE contributions after April 2019

Employers would support a “small increase” in automatic enrolment pension contributions after the planned April 2019 rise, a report from the Association of Consulting Actuaries (ACA) has found.

In its 2018 Pension Trends Survey, the ACA said that the median “acceptable level” on contribution increases supported by employers was 4 per cent employer and 4 per cent employee, rising to 5 per cent employer and employee for businesses with 500 or more employees.

Currently, contribution rates are at 5 per cent, of which the employer pays 2 per cent and the employee 3 per cent. From April 2019, contribution rates will rise to 8 per cent, with the employer contributing 3 per cent and the employee 5 per cent.

Commenting on the findings, ACA chair, Jenny Condron, said it is essential for the government to increase the default level of savings into defined contribution pension schemes.

“From 2025, with due notice having been given, there is the need to gradually phase in rises in total contributions until they reach 12-14 per cent of earnings,” she said.

“An 8 per cent or 10 per cent total contribution on all earnings, deemed acceptable by employers responding to the survey, is unlikely to generate the adequate levels of retirement income most people would want. We believe the phasing should alert workers so they too can plan ahead, whilst also recognising that there might be strained economic conditions over the period.”

Furthermore, Condron has urged the government to map out a programme to build AE participation and pensions contributions in the Pensions Bill expected in 2019.

The report also found that 75 per cent of employers forecasted no decreases in contributing members by the time of the next increase.

Despite this, it is the smaller employers who will be most affected, with 65 per cent of employers with fewer than 10 employees expecting modest decreases in contributing employees.

Small employers are also much more likely to have employees who don’t meet the AE criteria, with between 36-40 per cent of employers not eligible to be enrolled, compared to 26-30 per cent of medium to large sized employers.

The median opt-out rate throughout the automatic enrolment staging was 6-10 per cent, rising to 26-30 per cent for employees with fewer that 10 employees.

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