PENSIONS
Lowering the age threshold: the proposal to reduce the minimum age for AE from 22 to 18 would significantly expand the eligible workforce. On a technical level this might be a trivial change, easily handled with a software update, but the additional cost of complying with this extension, particularly for those employers with younger workforces, could be considerable. Removing the lower earnings limit (LEL): currently, contributions are only required on earnings above the LEL. Getting rid of this threshold where AE is concerned would mean calculating contributions from the first pound earned, needing further adjustments to payroll systems and increasing costs for employers. Increasing minimum contribution rates: while calls for this have been quieter lately what with the cost-of-living crisis, there have been persistent concerns about whether the current 8% minimum contribution rate is adequate and whether it contributes to a false sense of security while not delivering a reasonable pension. An increase to 12%, starting with the employer contribution rising to 5%, was previously suggested. Any increase would have implications for both employer costs and employee take-home pay. Also, while the employee contribution has gone up to 5% over time, opt-outs have remained much lower than forecast at the start of AE. Further increases may affect that rate and cause more work for employers as they manage more opt-outs. Save More Tomorrow: in its 2022 report, the Department for Work and
10.6 million workers had been automatically enrolled in workplace pension schemes. The financial implications are equally significant, with annual total savings among eligible savers increasing from £75.3 billion in 2012 to £105.9 billion in 2021. On top of that, the gender gap in pension savings has fallen and the number of young people and employees in very small business now paying into a pension has risen greatly. If this had been a voluntary initiative, it’s unlikely it would ever have achieved such impressive results. We might feel like sitting back and congratulating ourselves on being part of such a successful programme. However, in the world of pensions and compliance, standing still is rarely an option. Despite AE’s success, there’s a growing recognition that the current system may not be enough to secure adequate retirement incomes for everyone. This realisation, coupled with changing work patterns and demographic shifts, has sparked discussions about the next phase of pension reform. With a new government seemingly focused on pensions, we may be on the cusp of further changes to the AE landscape. Extending and improving legislation Several suggestions for extending and improving the legislation have been circulating for some time. While these proposals aim to build on AE’s success, they also present new compliance challenges for employers. Let’s look at some of the key ideas being considered.
Pensions suggested trialling auto escalation schemes like Save More Tomorrow, where employees commit to saving future pay increases into their pensions. That could mean significant additional compliance duties depending on what part employers would be required to play if this kind of scheme was added to legislation. Expanding coverage to gig economy workers: as non-traditional working arrangements become more common,
there have been discussions about extending AE to include workers on
zero-hour contracts or individuals whose employment status is disputed by the organisations that pay them. This would introduce new complexities in determining eligibility and managing contributions for workers with very variable incomes. As we’ve seen, AE compliance remains a challenge and may be more challenging in the future. It’s easy to feel overwhelmed by the complexities, just as we did back in 2012. Each year, The Pensions Regulator reminds us of the pitfalls with cautionary tales of non-compliant employers. So, let’s remember why we’re jumping through these hoops. AE compliance isn’t just about avoiding fines or dodging public shame. It’s about being part of a nationwide effort to secure better financial futures for millions. Yes, it can be frustrating to navigate the intricate rules and potential changes we’ve discussed. But isn’t it also gratifying to know that our attention to these details is directly contributing to the financial wellbeing of our workforce? n
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| Professional in Payroll, Pensions and Reward |
Issue 105 | November 2024
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