8 June 2020

Are you aware of the pitfalls you could face in your pension scheme?

By Philip Jenkins
“Automatic enrolment has been an extraordinary success, transforming pension saving and improving the retirement prospects of more than 10 million workers already.’’

So said Pensions Minister Guy Opperman of the government’s pension auto enrolment regulations in April 2019.

It is really encouraging that so many employers have embraced auto enrolment, enabling many employees to start saving for their retirement for the first time.

However, as a pensions advisor, we are increasingly seeing examples where employers are not fully compliant with the Pensions Regulator’s requirements.

One such example is the contribution levels. Employers will often state that the total pension contributions being paid for their employees are 8%, with the employer paying 3% of this, so are therefore complying with the requirements. This is certainly correct if the percentage is based on the members’ qualifying earnings which are currently defined as total earnings between £6,240 and £50,000. This means if one of your employees earns a total of £20,000, then their qualifying earnings are £13,760, and you as their employer will contribute 3% of this, with the employee paying 5%.

To simplify things, many employers prefer to calculate contributions on basic salary rather than qualifying earnings. In this case, if the total basic salary is below 85% of total pay (including bonuses and commissions etc.), then the employer’s contribution must be 4% instead of 3%, bringing the total contribution to 9%.

This is just one example whereby employers can unwittingly fall foul of the Pension Regulator’s requirements.

Still confused? Aston Lark is here to help. We have extensive knowledge of the various pitfalls that employers can face with regard to their auto enrolment pension scheme, having worked with many employers on the establishment and ongoing requirements of their schemes. Call us on 0207 543 2834 if you would like a review of your pension arrangements.

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