Autumn Statement 2015: Chancellor George Osborne (pictured) has announced that the next two phases of minimum pension contribution rate increases under auto-enrolment will be pushed back to coincide with the tax year.
The minimum contribution rate for employers was scheduled to rise to 2% from October 2017 and 3% from October 2018. These increases will now come into effect from April 2018 and April 2019, respectively.
The change aims to simplify the administration of auto-enrolment for employers, particularly small businesses.
Osborne said: “Over 5 million people have already been auto-enrolled into a pension thanks to our reforms in the last parliament.
“To help businesses with the administration of this important boost to our nation’s savings, we’ll align the next two phases of contribution rate increases with the tax years.”
Stewart Hastie, partner, tax and pensions at KPMG, added: “While this may ease the pensions cost burden on employers, this just kicks the can down the road in terms of addressing the UK’s savings gap.
“It is widely accepted that the UK is simply not saving enough to fund retirement and this decision will essentially take £3 billion out of employees’ savings in the next three years.”
Nathan Long, head of corporate pension research at Hargreaves Lansdown, said: “Pushing the step up in pension contributions required under auto-enrolment back and aligning to the tax year is good news for public finances and will be welcomed by employers.
“Aligning to the tax year will make it easier for employees to plan their retirement saving for the year ahead.”
The government has confirmed that it will publish its response to the consultation on pensions tax relief in the Budget 2016.
“The timetable for implementing the automatic enrolment reforms had already been delayed time and time again. It’s a fight that the Treasury keeps having with the Department for Work and Pensions and that the Treasury keeps winning. This time, it may have been seen as an easy sweetener to ask for as part of the deal on in-work benefits.
“Even with no further delays, it will now be April 2019 before minimum contributions are fully phased in. By then, it will be over 16 years since the seeds of this policy were sown when the Pensions Commission was asked to look at solutions to under-saving!
“When employers automatically enrol staff, they have to tell them what contributions will be paid, including when contributions will increase in future. Employers who used the Pensions Regulator’s letter templates will have already told staff that contributions would rise in October 2017 and October 2018. Until the regulations are published, it may not be clear whether all employers can change this without consulting employees.”
“The chancellor has aligned auto-enrolment contribution increases to tax years. For many employees, this makes life easier as annual and lifetime allowances are based on tax years, but it does mean that they will miss six months of higher contributions. For companies, pushing the dates back from October to April will have little impact on processes or payroll. A delay in staging dates would have been more help for small employers.”
“Today’s statement confirms that the outcome of the consultation on the future of pensions tax relief will not be known until next year’s Budget. The pensions world is therefore currently taking a collective deep breath before what could amount to the UK’s largest ever pensions tax shake-up.”
“Today’s statement has delivered very little in the way of pension surprises. In one sense this is a welcome break after the numerous radical changes of the last two years. However, we are still no further forward on the looming time bomb of the potential tax relief changes which the chancellor has indicated will be announced in next year’s budget.
“This uncertainty is causing a degree of planning blight for many schemes who are looking to update their systems to give full effect to the pension freedoms and other changes that the chancellor has brought in.”
“The alignment of the next two phases of minimum contribution rate increases for auto-enrolment will now be linked to tax years. Instead of the increases taking place in October they are to be delayed until April the following year.
“It is claimed that this has been done to simplify the administration of auto-enrolment for the smallest employers but it does of course effectively mean that individuals will not see the benefit of increased contributions into their pension schemes for another six months.”
“To date, auto-enrolment has done more to bring employees into pensions saving than the many corporate communication programmes that have been run in the past. Yes, there is the challenge of rolling out auto-enrolment to small and micro employees and the concern that opt out rates might rise as contributions increase, but the government has the opportunity to build on the success to date by setting out its policy as to how it can get those now auto-enrolled to save more. I don’t believe Government should duck out of a firm lead in this area.”
“The delay to the phased increases in automatic enrolment contributions will save the Exchequer a forecast £390m in 2017-18 and £450m in 2018-19. We understand the fiscal pressures the country faces and also the pressures on business as a result of the new national living wage.
“This is, however, the second delay to phasing, following on from the amendment to staging and phasing in late 2011. The government has to ensure that automatic enrolment proceeds as originally planned. There should be no further change to either the staging or the phasing timetables so that the right workers are included and they can begin to build up the pensions they deserve and will need.”
“The obvious question to ask is how will this actually help employers administer the changes? The biggest time of change for an employer around auto-enrolment is preparation for staging, and we have not seen any comment around this.
“Perhaps the opportunity should have been taken to remind employers that auto-enrolment should be taken seriously, and that employers should begin preparations 3-6 months before their staging date.
“Of course, when there are any big changes to anything, communication is key. My fear is that if employers hear the words ‘auto-enrolment’ and ‘six-month delay’ in the same sentence, will they assume that their project-plan for auto-enrolment can all now shift back by six months?”