TT280: Payroll: Update on Automatic Enrolment & Possible Future Changes

November 12, 2018

Auto-enrolment obliges employers to enrol all workers who satisfy age and earnings criteria into a qualifying workplace pension and pay at least a statutory minimum level of contribution. Currently individuals earning over £10,000 who are at least 22 years old and under state pension age are eligible for auto-enrolment.

It is estimated that 9 million workers have been enrolled in auto-enrolment pension schemes. According to the Pension Regulator the percentage of UK workers who are members of Defined Contribution workplace pension schemes has increased from 43% for men and 40% for women in 2012 to 73% of all workers by 2016.

It has been widely reported that one of the problems with auto-enrolment is that in most cases contributions being paid are too low. Minimum employer and employee contributions were initially set at just 1%. These increased in April 2018 for employers to 2% and employees to 3%. In April 2019, they will both rise to 3% for the employer and to 5% for the employee.   Whilst this provides an obvious benefit to workers there is a huge increase in costs for employers.   The changes in contribution rates together with annual increases in the upper and lower levels of qualifying earnings as well as employers having to deal with other payroll legislative changes, for example, minimum wage, adds further complexity.

The penalty for employers for getting this compliance wrong is increasing and both HMRC and The Pension Regulator are getting tougher.

In terms of future changes, the government is proposing to remove the lower earnings limit for auto-enrolment employer contributions currently set at annual earnings of £6,032 or £116 per week as well as lowering the age eligibility threshold down from 22 years old to 18 years old. This could bring a further 900,000 employees into auto-enrolment schemes including some who possibly work in multiple low paid jobs.   Whilst these changes may be many years away the burden on employers could be considerable.   Furthermore, in June 2018 the Supreme Court upheld a previous judgment against Pimlico Plumbers meaning some GIG economy workers can be classed as workers under EU law enabling them to access employment rights including the right to be auto-enrolled in a pension scheme.

Despite government promises of cutting red tape for businesses, clearly, auto-enrolment is only going to increase in complexity with the compliance burden upon employers alongside the already complex area of administering payroll.   Barnes Roffe LLP, offers an experienced fully staffed payroll bureau who are expert in these matters and, should you wish Barnes Roffe to assist with processing your payroll please contact your Barnes Roffe partner.


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