Why do Auto-Enrolment pensions matter?

Because you could be saving thousands.

The minimum contribution rate for workplace pension schemes is now 8%. That’s an increase of 5% of total qualifying earnings since they were introduced at 3%.

Under Auto Enrolment, an employee joins a qualifying pension, from which they can elect to opt out. Many businesses used the simplest pathway to ensure their compliance as contribution rates initially totalled only 3%. The choice of scheme was originally limited for larger, early staging employers.

The established and compliant ways by which contributions can be made are: 

  • Net Pay

    The employer’s contribution is made gross and is eligible for tax relief acting as an employer’s NIC reducer. The employee’s contribution is deducted from net salary and enjoys 20% tax relief within the pension itself.

  • Relief at Source

    (Salary exchange); The employee elects to reduce their salary by the amount of their contribution, generally 5%. This is paid into the pension gross with the 3% employer contribution added. The benefits of this include:
    1. Employee’s contribution enhanced by 12% employee’s NIC.
    2. Employee contribution enjoys 13.8% employer NIC saving.

The employer’s NIC saving can be deployed as the employer chooses. 

Each scheme reset reflects the client’s requirements and varies depending on scheme data. 

Assessing the value to an employer is achieved by simple data analysis.  This can add profit directly to the bottom line of the employer.

Although the savings themselves can be significant there are also real concerns over many existing scheme/investment governance and employee communications. The Pension’s Regulator has forced employers to make up both employer and employee back contributions for non-compliant schemes.

As part of the process, a scheme audit will be provided to demonstrate due care has been taken in the selection and ongoing management of the existing and replacement scheme.