Employers Are Contributing More Than Required To Auto Enrolment Schemes
A new report from the CIPD has revealed some fascinating stats on automatic enrolment and what the current situation is. The freshly-released September survey of 1,080 employers provides insight into the progress of the auto enrolment pensions implementation.
The auto enrolment process has been ongoing since 2012 when the first and largest UK employers reached their staging dates and since then 37,000 UK employers have completed their automatic enrolment requirements.
The auto enrolment story is not quite over just yet, however, with small businesses now the ones having to comply. There are a few fears that these smaller employers will be less capable of complying without any auto enrolment advice given their smaller - or lack of - HR departments and it’s no coincidence that the first fines for auto enrolment non-compliance came out in the past month. Having said that, there have been many positive signs from the employers which have already complied and these have been spelt out in a recent CIPD survey, not least the fact that employers have been contributing more than the necessary 1%.
So just how much are employers contributing?
The survey reveals that a massive 14% of employers are contributing over 9% of salary to their employees’ auto enrolment pensions – a remarkable number given that the current minimum employer contribution in the auto enrolment rules sits at 1%.
Exactly one quarter of employers which have already contributed said that they were contributing between 1% and 2.9%, meaning that the large majority of employers have gone above and beyond the call of duty when it comes to their contributions to the auto enrolment pension schemes.
The fact that the contributions employers will have to make is due to increase over the next few years may explain the current large contributions as companies look to have their future contribution levels in place from the get-go. Yet employer contributions will only go as high as 3% - 2% by October 2017 and 3% by October 2018 – meaning that most employers are already surpassing the future minimum requirement by some bit.
And how do the employee contributions compare?
While the employers are contributing a lot to their employees’ pension pots and going above and beyond the requirements, employees are unsurprisingly not doing the same. 28% of the employers surveyed reported their average employee contribution to their automatic enrolment pension was less than 3%.
This could be a worry given that over time employees will have to increase their contributions to at least 3% by October 2017 and then 5% by October 2018 unless employers exceed their minimum contributions. As seen, many employers are contributing more than required, but unfortunately the data is unable to show if the employees contributing less than 3% are linked with employers exceeding the minimum.
That the opt-out rates from auto enrolment have been so low so far – 46% of employers reported opt-out rates of under 10% - may well be because there is such a small percentage of salary required at the moment to be a member. There are concerns, however, that when the employee contribution rate increases from 1% to 5% that staff will be a lot less keen to be a part of the auto enrolment party.
All in all though, the outlook is positive so far and the auto enrolment help in solving the UK’s savings crisis could be massive as employees suddenly find themselves part of a pension scheme when they might never have otherwise.
That employers have contributed more than necessary is a great sign, but whether employees will dig deep when the contribution rates go up remains to be seen. That is one potential issue, as is the fact that smaller businesses are now going through compliance. It was thought that they may find it more difficult, but with research showing that 3 out of 4 small businesses are considering professional automatic enrolment advice, it could very well work out just fine for everyone…
Photo credit goes to JMR_Photography