Increased workplace pension contributions – are you ready?

Workplace pension contributions are set to increase from April 2018 for employers and employees. Are you prepared for the change? How will your employees react?

Auto enrolment has proved a successful drive in getting more people to save for the future. Most employees choose to stay in their workplace pension scheme. As the first real ‘litmus test’ of whether or not people are committed to saving for retirement, the result is positive.

But what will happen next year, when contributions increase? Here’s a reminder of the changes coming into effect.

Some questions to consider:

• Will the increases cause employees to leave their workplace pension schemes?
• How can employers make pensions affordable?
• How will other benefits be affected?

Financial education and wellbeing

Now is the time to start educating employees about the timescales and the implications of these changes. Are they even aware that their contributions will increase next year? To avoid large-scale abandonment of workplace pension schemes, employees really need to be clear on the benefits of saving and why it makes sense to continue paying in.

Budgeting sessions can show people how to save money in other areas of life which will help to make the increases more affordable. Employees may also need to consider the impact on their other benefits if affordability does become an issue.

For example, could they make an informed choice between a pension scheme and voluntary life assurance contributions? Would they be clear about which one is their highest priority?

Being able to understand the implications of decisions like these gives employees control and enhances their financial wellbeing. This will help to make the pension contribution increases more palatable. It will also help them focus on their desired lifestyle, both now and in the future.

Making it affordable

If you want to make the increased contributions more affordable, salary exchange is an option. Remember that when salary is exchanged for pension contributions, National Insurance Contributions (NICs) are reduced for both employer and employee.

You could also consider splitting the increases with your employees. For example, could you pay 4% and reduce your employees’ contribution to 4%?

No employer can afford to ignore these changes and the increases are a key cost to plan for. They should be factored into your budgeting cycle over the next three to five years.

Spread the word

As the new legislation comes into effect, employers can use it as an opportunity to encourage employees to review their pension planning.

But don’t wait until then to start talking about it. Before your benefit window opens, ensure you have employee communications in place to get people thinking.

If you’d like to talk to our financial experts, please get in touch.