PensionsOct 17 2017

Bosses to curb wages to pay for pension increases

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Bosses to curb wages to pay for pension increases

Some small and micro employers expect to cover the costs of auto-enrolment increases by curbing future pay rises, research for the Department for Work and Pensions (DWP) has found.

The report, carried out by Breaking Blue, showed employers are generally aware of planned increases in the minimum rate of employers' and employees' auto-enrolment contributions.

The firms who did not know about the government’s increase plan didn’t show surprise or concern.

Currently the minimum total contribution is 2 per cent - 1 per cent each from the employee and employer.

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 rise again to 8 per cent, with the company paying 3 per cent.

A total of £17bn a year will be going into workplace pensions by 2019 to 2020 because of auto-enrolment.

Some employers said they would cope with the additional cost of contributions by stopping or reducing salary increases but many felt the costs would simply "get lost" among other business costs

The research, which polled 70 employers and 65 workers, showed the former believe auto-enrolment is a necessary and sensible policy.

When these firms actually had to start planning and implementing it, most employers found the cost and time burden involved to be lower than they had anticipated.

As a result, DWP encountered very few small or micro employers who described issues with complying with their duties on time.

Guy Opperman, minister for pensions and financial inclusion, said:

“With record employment and a competitive marketplace, there is no better way to demonstrate the value of your employees than by contributing towards their workplace pension.

“So for those business owners yet to enrol their staff, my advice is clear: be aware, be prepared, and use the support available from the Pensions Regulator. Together we can help to get even more of the UK saving.”

Workers who didn’t opt out tended to accept pensions are the responsibility of the individual, alongside that of their employer.

Those who decided to stop making pension contributions either they felt they simply could not afford to save anything, or they had other pension provision they felt confident would provide the level of retirement income they needed.

Where workers remained in a scheme their choice, if one was made, was usually quick and instinctive.

In contrast the decision to opt out tended to require more active thought - although those who opted out were typically much firmer and more confident in their choice than those who remained in.

The report showed a few of the workers currently auto-enrolled are concerned about the rise to five per cent, particularly where this was exacerbated by other aspects of uncertainty in their lives, such as possible house purchases or potential salary increases.

Malcolm Mclean, senior consultant at Barnet Waddingham, said the overall results of the research were "very encouraging", and suggest small and micro employers "are aware of the impending increase to the contributions and are ready and willing to cope with them".

He said: “I think we can expect some increase in opt outs as a result of the 5 and 8 per cent rises but touch wood, and with the support and encouragement of employers, hopefully these will be minimal.”

In the meantime the DWP is conducting a review of auto-enrolment, five years after its launch. The report, with final recommendations, will be published by the end of the year.

maria.espadinha@ft.com