Delays In Increase Of AE Contribution Rates

1 December 2015

Chancellor Delays Increase In Auto Enrolment Contribution Rates Whilst auto enrolment didn't exactly take centre stage in Chancellor George Osborne's Autumn Statement, it did feature prominently thanks to the Chancellor's decision on contribution rate increases.

In his speech, George Osborne announced his plan to delay planned contribution rate increases to align them with the tax year. Previously, the total minimum contributions had been set to go up from 2% to 5% in October 2017 followed by a rise to 8% in 2018. However, these rises have now been delayed and will take place in April 2018 and April 2019.

"Over 5 million people have already been auto-enrolled into a pension thanks to our reforms in the last parliament. To help businesses with the administration of this important boost to our nation's savings, we'll align the next two phases of contribution rate increases with the tax years."

Who will benefit?

Employers. By delaying the contribution rise from October 2017 and October 2018 to April 2018 and April 2019, it will ease the burden on employers. Aligning the contribution rate rises with the tax years as well as saving businesses money in the short term it will save the Treasury £390 million in 2017/18 and £450 million in 2018/19 because tax relief on contributions would be lower.

Who will lose out?

Savers. Essentially, whilst changes may ease the cost on employers, it just delays the pressing issue of addressing the savings gap in the UK. We already know that people are not saving enough for retirement and by delaying contribution rate increases, and it's estimated that £3 billion will be lost over the next three years. However, it could be of benefit in the short term if the delay results in fewer people opting out of their auto enrolment pension.

Overall, it looks like these changes will be warmly welcomed across the board, with businesses enjoying an easing of the financial burden as well as the administration being made easier with the alignment of rate increases to the tax year. However, savvy savers who have a keen eye on their retirement savings may not welcome it as warmly, as the delay to lower contribution rates will mean a delay in the rise of employer contributions to their pension pot.

  • Author Profile
    • Sp avatar Smart Pension

      Smart Pension was founded by experienced finance & technology professionals and has been designed specifically to support UK business…