Briefing Notes

Briefing Note 106 - Automatic enrolment minimum contribution increases and pay

Automatic enrolment into pension schemes was introduced in 2012. Employers are required to automatically enrol employees who meet certain eligibility requirements into an appropriate pension scheme with a minimum acceptable level of pension contributions.

The idea of automatic enrolment is to use inertia to encourage pension savings. If an employee wishes to not be a member of a pension scheme they have to actively opt out. However, if the cost were to substantially increase there are fears that the inertia factor could be overcome, leading to a higher rate of opting out and cessation of pension saving.

This Briefing Note aims to examine the extent of the effect of increased minimum automatic enrolment pension contributions on take-home pay and total remuneration, and how changes to income tax and National Insurance thresholds might reduce the impact of the contribution increases on salary.