Automatic enrolment – change as an opportunity

KPMG explains how employers can make the most of the increase in auto-enrolment contributions.

10 July 2018

April 2018 saw the first step up in minimum auto-enrolment contribution levels and this has prompted a renewed focus on pension benefits. 

Employers will have seen minimum levels increase from 1% to 2% in most cases. With another increase to 3% due from April next year, pension contribution spending could rise up to three times over a relatively short period. 

While the first priority will be to understand the impact on your organisation, the changes present an opportunity to take a step back and understand whether your pension scheme could be doing more for you as an employer, as well as for your employees. 

Understanding the impact

Budgeting for these cost increases is clearly important, and you should check that they have been built into your projections. 

If you operate more than one contribution structure, it’s also important to consider the interactions between these. 

For example, if you offer an auto-enrolment structure and another, more generous, opt-in structure, you may wish to consider: 

  • Are the lowest levels in the more generous structure still compliant?
  • Does the convergence of the two structures negate the benefits of running them separately?
  • Will members opt up to a higher rate, having become accustomed to paying higher levels?

Making the most of the changes

Since auto-enrolment began, it’s likely that the assets in your scheme(s) have grown considerably. And with the significantly increased levels of contributions that will now be being paid over, the value should increase even faster. This means that approaching the market to benchmark the scheme’s charges could result in a substantial reduction to the charges members pay. 

If you’ve been operating more than one scheme, you may be able to consolidate these, resulting in even lower charges for members, as well as lower administration costs for the organisation.

Communicating the benefits

For some employers, there is a perception that their pension contributions are not valued by a significant number of their employees. 

It’s tempting to see increased contributions as a sunk cost, but instead these should be viewed as an opportunity to engage. 

Well-delivered communications can help employees understand the true value of additional contributions. 

Updating your pensions literature and a potential requirement to consult on contribution level changes provides a good opportunity to take a fresh look. 

It makes sense to get this right, and in doing so help employees to better prepare for their future. 

More widely, understanding the financial demands and strains on the modern workforce will help you to build a remuneration package which directs finite resources into areas that will have the biggest impact for your staff, in turn boost your recruitment and retention successes.

Take part in our survey

In association with Clearer Pensions for Housing Associations, the Federation has launched a short online survey looking into the defined contribution pensions currently being offered by housing associations, including trends and the part it plays in reward.

The Federation will share the high-level results of the survey, giving you the opportunity to compare yourself to others within the industry on a variety of topics ranging from auto-enrolment to flexible benefits.