How ready are businesses for the increase in contribution levels under auto-enrolment?

March 2019

At a glance

Many employers are facing a cost increase due to contribution levels for auto-enrolment being set to increase once again in April 2019
However, not all firms are ready for the rise in contribution levels
This could lead to a further hike in the number of firms being fined for auto-enrolment errors

It’s time to act as contribution levels for auto-enrolment set to rise

UK employers must act to ensure their workplace pension schemes meet regulatory requirements as automatic enrolment contribution rates are due to increase again this year.

The total minimum contribution rate increased from 2 to 5 percent in April 2018 and by law, the minimum amount that employers and staff must pay into automatic enrolment pensions goes up on 6 April 2019 to 8 percent. If the employer has chosen to use certification, there are corresponding incremental increases in the applicable contribution rates on these dates.

There have been fears that increases in minimum contribution rates would lead to large numbers of scheme opt-outs but research by the Association of Consulting Actuaries found that the majority of employers were not expecting this – 88 per cent reported that opt-out rates had remained low when rates increased in April last year.

Not all employers are prepared

The rate rise will affect a significant number of UK employers across the UK but not all employers are prepared for it. Aon’s Benefits and Trends Survey 2019 revealed that nearly half (48 percent) of UK employers are facing a cost increase to meet automatic enrolment contributions requirements for 2019 whereas 7 percent of those polled are unaware if they still need to make changes or not. On the contrary, 45 percent said their schemes already meets the new 2019 requirements.

Martin Parish, Area Director – Workplace Pensions at Aon within the Employee Benefits division said “I am not surprised by the number of employers having to make an increase in contribution levels. A good number of companies will be operating pension schemes on minimum legislative contributions. However, feedback indicates that some employers have not yet agreed what their new contribution structure will be from April which may cause implementation and employee communication problems”

Meeting auto-enrolment requirements

Auto enrolment duties began for large UK employers in October 2012 over a staggered six-year period, with progressively smaller employers expected to auto-enrol staff later. From 2017, businesses employing less than 50 staff needed to meet their auto-enrolment duties with a final deadline of February 2018 for the smallest and newest UK firms. In December, new DWP figures revealed that nearly 10 million workers are now enrolled in workplace pension schemes.

Interestingly, analysis carried out by law firm EMW revealed a 144 percent rise in the number of businesses being fined for auto-enrolment errors – predominantly smaller businesses. 35, 810 UK businesses were fined £42m during 2017/2018, a threefold increase the previous year, where 14,650 businesses were fined £12.6million in 2016/2017.

Parish adds “Employers cannot afford to stick their head in the sand and ignore automatic enrolment legislation. Smaller employers may not have the time or expertise in house to handle what can be a complex problem to solve and with a further contribution increase weeks away I expect the number of employers fined to rise again in 2019”.

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