Most employers already beating new AE rates

Most employers already beating new AE rates

The majority of employers are already contributing more to auto-enrolment than the minimum levels due to be set in two years’ time, the Pensions and Lifetime Savings Association (PLSA) has found in a survey among its members.

According to the survey, which was out on Friday (15 December), 71 per cent of employers are contributing 3 per cent or above to their employees’ DC pensions, which means they are already providing the minimum contribution rate scheduled for 2019.

It found the default mean total contribution rate was 8.4 per cent, made up of a 2.4 per cent employee contribution and a 5.9 per cent employer rate.

However, the PLSA cautioned its members tended to be “more engaged and pay higher contributions” than other employers.

The survey nevertheless highlighted the “stark difference” between the amount of money flowing into defined benefit (DB) schemes and DC schemes, the PLSA said.

For DB schemes, the overall contribution rate was 33.6 per cent, having seen employer contribution rates rise from 24.2 per cent in 2016 to 28 per cent now.

The mean employee contribution rate in those schemes stood at 5.6 per cent.

For local government schemes the average common employer contribution rate decreased slightly from 19.4 per cent in 2016 to 18.9 per cent in 2017.

Graham Vidler, director of external affairs at the PLSA, said the report came as the body awaited the publication of the government's Automatic Enrolment (AE) Review.

“It charts the growth of DC schemes as the dominant workplace pension option following the advent of automatic enrolment and highlights the stark difference between the amount of money flowing into DB schemes compared to DC schemes.”

The government today (18 December) published the findings of its auto-enrolment review, launched last year by the Department for Work & Pensions (DWP).

It has proposed lowering the age for auto-enrolment of workers from 22 to 18-years-old, which, it said, would bring 900,000 more workers into saving an additional £800m through a workplace pension.

It also said it would change the way pension contributions are calculated so they will be calculated from the first pound earned, instead of the £10,000 lower earnings limit.

However, the government stopped short of tinkering with contribution levels, saying they will be reviewed after the last increase has been completed.

Auto-enrolled savers currently have to contribute a minimum of 2 per cent to their workplace pensions, made up of a 1 per cent employee contribution and a 1 per cent employer share.

From April 2018, the minimum total contribution will increase to 5 per cent, with the employer paying 2 per cent.

One year later, it will increase to 8 per cent, with the company paying 3 per cent.

The PLSA conducted its survey between 5 June and 28 July among 176 members, made up of DB and DC schemes, master trusts and local government pension schemes.

Together they represent 6.5 million members with £526bn in assets.

On average, the DC respondents reported 88 per cent of their main active members remained in default funds, despite the fund choice being generally high, the PLSA report found.

Trust based schemes offered an average choice of 12 different funds while contract based schemes had 55 funds on offer.