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Auto enrolement Increase

Starting to see a lot of dropouts.

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I have quite a few clients in the hospitality game, bars restaurants etc, a lot employ students until they get proper jobs.

Whilst most staff have remained in the AE scheme I had suspected that once the staff contribution went to 5% that staff would start to drop out. Sure enough as soon as April payslips went out I have had a lot of notifications that people now want to opt out. I accept its up to them what they do but I feel that its not such a good idea.

Are we expected to confirm with them that they have taken advice on this or I feel I should maybe get an IFA to go and see them.

I feel a bit exposed on this, obvioulsy the business owners are happy at the drop out rate.

Has anyone else seen this from staff in NLW level jobs.

I have always felt that AE will unravel badly but dont want anyone pointing the figure saying we should have done more.

 

 

 

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By Slim
13th May 2019 14:04

Yes, since the increase we have seen more opt outs than ever.

Our clients have had the employees sign a letter and they have personally had to opt out, so I'd hope that's us covered.

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13th May 2019 14:14

I remember vaguely being on a secondary legislative committee that a looked at the issue that for some potential employees there was not necessarily a long term benefit of participating in the pension scheme. That was the basis upon which lower earners were excluded from auto enrollment. I have not personally studied the balance here, but it is not necessarily a bad idea to come out of the scheme depending upon personal circumstances.

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By Mr_awol
13th May 2019 14:16

As you say, it was always going to happen when the e'ee contributions went up.

Glennzy wrote:

Are we expected to confirm with them that they have taken advice on this or I feel I should maybe get an IFA to go and see them.

I feel a bit exposed on this, obvioulsy the business owners are happy at the drop out rate.

I wouldn't be asking the employees if they're sure - i'd feel a hell of a lot more exposed if my clients (for whom i do act) found out that I'd gone and convinced their employees (for whom i don't act) to opt back in when they'd previously indicated a desire to opt out!

We gave the employers communications to pass round to employees with their payslips giving them the heads up on it. Whether the employers did or not, who knows. If we see a massive drop out then we might give them something to pass round again I guess. Im not sure if we have seen too much drop off so far.

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to Mr_awol
13th May 2019 14:47

I get your point. I was thinking more the staff confirming they had taken some advice before making the decision.

At 8% combined contributions I suspect its also worth looking at non AE schemes which will probably perform better.

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By Mr_awol
to Glennzy
14th May 2019 16:05

Ah I see - I thought you meant check with your clients' staff (quite risky I reckon) not checking with your own staff (right thing to do I think).

Im not aware of any of our lot dropping out - but then I don't get involved in the payroll so unless those that do mentioned it, I probably wouldn't. I can probably predicts the one(s) who would opt out though.

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13th May 2019 14:18

Lots of casual labour, lots of young labour. I guess it's not a surprise.

A single paragraph of recommended advice, I would think, should suffice. Clients are grown ups and should be treated as such even when they behave like a classroom of unruly kids.

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By tom123
13th May 2019 14:59

Like all good legislation (!) the bad news was in 'the future' which has now arrived..

My workforce is a little more stable, and nearer to retirement, than the ones you work with, Glenn, but even so there have been moanings on the shop floor.

No-one has actually asked to come out yet though.

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13th May 2019 15:08

Hoestly, I've opted out. The increase in take home pay is significant, and my pension forecast for the AE pension was simply not worth it (by the time tax is deducted it's a waste of time).

Having said, 54 YO, and I have an index linked Civil Service pension waiting for me, so this pittance won't make any difference.

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By DJKL
to SteLacca
13th May 2019 15:44

Afraid given the employer contribution(however small) I take the opposite view, having up to now never had any employer contributions to my various pension schemes/other saving vehicles over all the years I have saved (since the 1980s) I quite like the fact that I am getting part of the scheme value at no cost to myself and I do get the further relief via my tax return re higher rate- at the end of the day if one can get 40% relief on own contributions , employer contributions also made for me and 25% tax free plus hopefully taxed at basic rate on drawdown in retirement (unless I screw up our tax planning) it seems fine to me.

It is not going to be an enormous sum but if I flog on until 66/67 (currently 59) I expect to get at least one year's bonus income in retirement out of the AE pension, or it may let me retire a year earlier.

I believe there is discussions about making the AE schemes cover all earnings so may even get a bit of an increase, an extra 3% on circa £6k at the lower end and I believe the upper contribution threshold may also recently have gone up to £50,000, so extra employer contributions already in place on £3,650 at 3% for say 8 years.

Retirement saving is all about investing small amounts for as long as possible, I started in the mid 80s at £25 per month increasing by 10% compound each year , the increases were never noticed but the sums invested just kept growing with the little extra each year .My Dad did similar buying each year from the 1950s one or two small stockmarket holdings and never touching them, they continued to grow, and provide income, until he died in 2012- compounding is a wonderful invention.

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By Mr_awol
to DJKL
14th May 2019 16:10

Depends on whether the employer contribution is really 'at no cost to you'.

Most smaller or smallish employers I would expect consider the total package cost of each employee. For us, we add up the cost of salary, E'ers NIC, pension, study, parking, health, etc etc etc and know how much each member of staff is costing us.

We haven't specifically adjusted salaries for pensions but I can imagine some will have and for all businesses it affects how much is in the pot. I suspect that AE pensions will probably have been absorbed into employee salraies by most employers in the next 3-5 years (total speculative estimate off the top of my head of course).

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13th May 2019 15:12

Given the ambulance chasing going on right now about the misspelling/advising of anything financial right now, I fear you may be right to be concerned but it does not seem to me to be our place to advise the employee.

On a practical level, if you can find an IFA willing to speak to anyone about this he's likely got a bridge to sell you.

20 years from know, the holograms will be asking "Did your employer chose the wrong AE provider?"

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to Roland195
13th May 2019 15:42

Sadly I think will be right as I suspect that most schemes will perform fairly poorly.

I imagine most accountants picked a provider that was easy to deal with or that linked to software the best, or had nil setup cost.

AE the next PPI???

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By DJKL
to Glennzy
13th May 2019 16:11

I went for best value (as I perceived it) for the employees choosing Peoples for all the ones I did (only three). Whilst they charged the employer upfront fees (circa £300 I think) their charging re the actual schemes seemed reasonable.

It does all depend on earnings and critical mass of funds as to whether people think it all worthwhile, but my monthly contribution (max) to this scheme come in at circa £146.20 per month employee, tax relief direct to scheme on same is £36.55 and employer contributes £109.65 per month, so £292.40 per month goes into fund with a net cost to me of £109.65 (146.20-36.55 H Rate).

£292.40 per month is £3,508 per annum so circa £28k into fund over 8 years to my retirement:- it may not amount to vast riches but as an augment to my SIPP and my spouse' DB scheme it is not so small as to ignore.

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By DJKL
to Roland195
13th May 2019 15:47

I really wish there was more litigation about misspelling, standards are appalling.

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to DJKL
13th May 2019 15:48

I would be knackered if there was.

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By Maslins
13th May 2019 16:49

Personally I think the law should just make employER contributions obligatory, at a higher rate so no contribution expected from employees. It would make life much easier, and wouldn't lead to opt outs.

I do worry that many people will give up on ~£20/month in their pension in order to have ~£5 more net pay now...then in a couple of decades time grumble at how unfair the world is.

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By DJKL
to Maslins
13th May 2019 17:18

Agree.

The one I set up for a charity (where I got to choose) I did just that.

We had staff earning with us say £5,000 and maybe having two other employments at similar level elsewhere, effect no contributions from anyone.

Just the sorts of staff AE ought to help, so I set up the charity as 8% day one , calculated on total earnings and all paid by employer- no reason to opt out and staff loyal particularly to us compared with treatment by the opposition (well I hope they still are as I retired as Treasurer shortly afterwards)

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to Maslins
13th May 2019 18:53

Maslins wrote:

Personally I think the law should just make employER contributions obligatory, at a higher rate so no contribution expected from employees. It would make life much easier, and wouldn't lead to opt outs.

I do worry that many people will give up on ~£20/month in their pension in order to have ~£5 more net pay now...then in a couple of decades time grumble at how unfair the world is.

Great idea! Many small businesses are struggling right now, Increasing the financial burden is really going to help them.

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By DJKL
to legerman
13th May 2019 19:45

You phase it in slowly over a few years in conjunction with annual pay increases, so cut the pay increase you might have given by 1% over each of 5 years, you soon get to 8% and you stand out from the opposition.

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to DJKL
13th May 2019 22:24

NLW just gone on up 6% so you cannot offset pension increase against that

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to legerman
17th May 2019 11:44

agree with Legerman- why should the employer have all the cost of saving for employee retirement. And if they did, they'd probably take it back from gross salary to compensate cost to business. The employer already has the NIC and often cost of other benefits as part of the employee package.

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to Maslins
14th May 2019 09:45

I chose to pay the full contribution for all our employees however I still believe that this should be up to the individual employer.

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13th May 2019 18:35

Surprisingly, I haven't seen any opt-outs since April.

Early days, though. I suppose.

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13th May 2019 18:56

Glenn, unless you've specifically advised the employer which pension scheme to join I really don't see an issue for us.

Regarding the increase though, last week I got an email from one of the pension providers to say the client's employee was reducing his contribution from 5% to 3%. I didn't actually know you could do this, but surely that's a better solution than opting out altogether.

On minimum wage though that £5 someone mentioned can be a lot to a family that's struggling, so this comes as no surprise to me, although the employee I mentioned is on £10 an hour so obviously that's not the reason here.

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to legerman
13th May 2019 18:53

He's opted out of AE then.

The employer has no obligation to chip in his 3%.

Are employer and employee aware of that ?

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to lionofludesch
13th May 2019 19:01

lionofludesch wrote:

He's opted out of AE then.

The employer has no obligation to chip in his 3%.

Are employer and employee aware of that ?

Has he? I will delve into this in more detail. Thanks Lion.

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to legerman
13th May 2019 19:15

legerman wrote:

Has he? I will delve into this in more detail. Thanks Lion.

You're welcome, pal.

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to lionofludesch
13th May 2019 22:33

Good knowledge Lion I was nor aware of that chestnut either

Thanks for that

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to lionofludesch
13th May 2019 19:16

lionofludesch wrote:

He's opted out of AE then.

The employer has no obligation to chip in his 3%.

Are employer and employee aware of that ?

Yes, I've just looked into this and, whilst the employee can reduce the percentage on certain schemes, it is no longer AE compliant. Thanks Lion, I will address this with the client tomorrow.

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to lionofludesch
17th May 2019 11:47

Lionofludesch is right - he cannot pay less than 5%
That is the rule of AE

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By waldron
to C Graham
17th May 2019 16:06

Hi, I just spoke to someone at smart pension and she advised that if the employee does not opt out but elects to reduce their % the employer must make up the shortfall to maintain the full 8%.

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to waldron
17th May 2019 16:38

waldron wrote:

Hi, I just spoke to someone at smart pension and she advised that if the employee does not opt out but elects to reduce their % the employer must make up the shortfall to maintain the full 8%.

Utter, utter rubbish.

Are they saying that an employee can opt to pay nothing and unilaterally saddle the employer with the full 8% ?

Ring them back and ask to speak to someone who knows what they're talking about.

Jeez - it's like ringing an HMRC hell-line - does no-one know their job any more ?

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to lionofludesch
17th May 2019 16:53

That was clumsily worded - the employee should be told that he either opts out, or the employer will be deducting the full 5%.

He definitely has no right to reduce his contribution if he's to stay in AE.

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to legerman
13th May 2019 22:32

My worry is though Legerman is that I made the decision that I would use Nest for any schemes I set up for clients for the simple reason it has an API that works with. Xero and Brightpay

I made it clear that If clients had their own preference then I would use the scheme they wanted

My concern is that over the course of time that clients would remember it as us recommending Nest over others

In the event Nest turns out to be a stinker

The whole thing just makes me nervous

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to Glennzy
14th May 2019 13:02

Glennzy wrote:

My worry is though Legerman is that I made the decision that I would use Nest for any schemes I set up for clients for the simple reason it has an API that works with. Xero and Brightpay

I made it clear that If clients had their own preference then I would use the scheme they wanted

My concern is that over the course of time that clients would remember it as us recommending Nest over others

In the event Nest turns out to be a stinker

The whole thing just makes me nervous

Personally I think that's sufficient, TPR said that suggesting a provider does not constitute financial advice. Your second paragraph is key and presumably documented so you shouldn't have anything to fear.

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By jcace
13th May 2019 22:51

I would think that the most important consideration for anyone dealing with an Auto Enrolment opt out is that the opt-out is valid and presented in such a way as to satisfy the legal requirements.

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By Maslins
14th May 2019 09:26

legerman you're saying that both many of the individuals can't afford to sacrifice a small sum that's for their own benefit longer term, but also that the employers can't afford to cover it...so what's the solution? Nobody set any money aside and let tomorrow worry about it?

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By DJKL
to Maslins
14th May 2019 10:33

Spot on- that is the ticking time bomb.

Over the years I have chatted with a lot of people about their pension provision, those in employment where there are employer schemes or who work for state etc, no real issue, they are generally covered and will have something to supplement the state pension. But those under say 45 /50 working in employment/small self employed, where no provision from employer these days very often have no pension provision, no ISA savings, no anything- in retirement they are going to live on thin air or try to live on he "my house is my pension" mantra- tick, tock, tick, tock- who is going to pay the taxes to support this large mass of individuals in retirement, or are they all going to need to work until they drop?

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14th May 2019 11:29

If you are 'just' the accountant, then your clients' staff are not clients of yours - so are not able to sue you.

On the other hand, if you start sending them letters, perhaps some relationship is created that can then be sued over.

That would be where I would start in deciding whether to have any contact with them or not.

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15th May 2019 10:50

Although we are right to be concerned about people opting out, it's the government's responsibility to do something about this. They left it far too long before passing auto-enrolment legislation and will presumably leave it far too long again to "correct" the effect of the latest increase.

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17th May 2019 11:01

I feel that opt out should only be for those whose schemes values hit the £1.03m cap.

It is those on the lowest incomes who will be the biggest burden on the state in retirement.

As others have said in a few years it will just be a cost of employing someone, along with NIC etc.

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to pauljohnston
17th May 2019 11:19

pauljohnston wrote:

It is those on the lowest incomes who will be the biggest burden on the state in retirement.

I can see the Tories adopting this as a policy - "they're poor - they don't matter".

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to pauljohnston
17th May 2019 13:07

Part of the consideration was, however, the question as to whether there was a benefit to the people on lower wages. I could try to hunt up Hansard on this if that is doubted.

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By DJKL
to johnhemming
17th May 2019 15:56

Presumably a play off with the gradual top up to the new minimum state pension thingy amount (as it did not really impact me I did not read very closely, hence somewhat imprecise description) so that unless the AE pension reached X they were better off not saving.

Simple cure- rewrite to remove any such disincentive, make pensions like AE an augment not a taken into account inclusion and therefore encourage the UK population to do some much overdue saving.

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17th May 2019 11:38

the whole AE idea is flawed because younger employees change jobs frequently and then have admin fees deducted on small pots of pension that they accumulate.

The schemes are also only as good as those running them so whilst a reputable scheme provider may be giving some value, some of the smaller ones that exist for companies who could not set up with those established names, are not as dependable.

And many employees still pay off student loans so a double whammy.

The tax relief is small and as the value of the employer contribution is not obvious until way into the future, I can understand why some at the start of their career path find it 'too expensive'.

but the biggest problem is the acquiring of multiple pots of pension with small amounts - each not doing much. That always creates confusion with new employees - they think their previous pots will simply transfer.

We have had no opt outs since April but we did prepare them for the 5% contribution well in advance.

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By DJKL
to C Graham
17th May 2019 16:45

I though most of the employee fees were as a capped 0.75% of funds, or lower, so myriad pots would not suffer, each paying their share based on pot size. However have not particularly studied the fee charging mechanisms inherent so this may not be the case, do you have more information re this?

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