You probably haven’t ever tried to boil a frog, but if you ever do then don’t put it in boiling water – it will jump straight out! If you start with it in cold water and boil it slowly, then your frog is toast. Don’t ask how we know this, but it is a useful analogy when thinking about Auto-enrolment pensions!
Auto-enrolment made it compulsory for employers to offer eligible workers a workplace pension, in a bid by the Government to help people invest for later life. When these pensions first started, the percentage being taken from your employees was 1% of their pensionable earnings, but on 5th April 2019 this will increase to 5%.
Whilst you as an employer are unable to opt out of the pension, your employees on the other hand do have a choice and if you had told them at the time of introduction, that that they would stand to “lose” 5% of their earnings a few years down the line, then they would of all opted out…..much like the frog jumping out of the boiling water. But the Government have introduced this increase slowly and gradually, with the idea that the employees won’t notice.
This coupled with the fact that many employees are being automatically re-enrolled after they first opted out (as opting-out only lasts for three years), may come as a bit of a shock to many employers and employees.
As an employer you do not need to take any action as this is all done automatically, but it may be worthwhile being prepared to answer the inevitable questions and pre-empting the questions by informing your employees of the changes before April. If you use one of the recognised portals, such as true potential or smart pensions then your employees should be informed automatically.
It is also worth noting that Employer contributions will also go up to 3% in April 2019 but unfortunately this is compulsory and you will have no choice in paying this to those eligible workers who do not opt out..
If you would like to discuss any aspect of auto-enrolment or the upcoming changes, please contact your client manager.