When auto-enrolment was introduced increases in contributions were planned over time. In this post, we discuss the next scheduled increase due in April 2018. We also discuss a potential loophole in the legislation and its implications.
The minimum level of contributions until 5 April 2018 is 1% by the employer and 1% by the employee. Contributions are usually expressed as a percentage of earnings. The employer decides what represents earnings. For example, the may decide earnings excludes any bonus or overtime payments.
The employer may decide to contribute more than the minimum. At the current contribution levels if they were to decide to contribute 2% or more then the employee may not (if the scheme rules allow) be required to make any contribution.
From 6 April onwards (until the next increase planned in April 2019) minimum contributions will increase to 2% by the employer and 3% by the employee. The option for the employee to actively opt-out of auto-enrolment remains. For obvious reasons, employers are forbidden from encouraging employees to opt-out.
On a relatively small number of schemes, there is a loophole (after 6 April 2018) to allow an employee to make a lower level of contributions than the specified minimum. However, any employee who acts on this option takes the risk the employer may decide to also reduce their contributions (potentially to zero).
If an employee does exploit the loophole and pay lower contributions they will be automatically re-enrolled in the scheme every three years. They will be re-enrolled at the standard minimum level of employee contributions.
This blog is intended to provide a general review of certain topics and its purpose is to inform but NOT to recommend or support any specific investment or course of action.