Most firms exceeding minimum pension payments

RULES that will raise minimum employer contributions into workplace pensions in 2018 are already being exceeded by nine out of 10 businesses, according to research from financial services multinational Aegon.

New rules introduced in 2013 require companies to automatically enrol their employees in pensions, with the minimum employer contribution initially set at 1 per cent of an employee’s salary, rising to 2 per cent by April 2018 and 3 per cent by April 2019.

The study found that 92 per cent of firms are already paying at least the minimum 2 per cent employer contribution and 85 per are already paying 3 per cent or more. Twenty-three per cent of firms currently contribute 5 per cent.

A level of 5 per cent is the most popular level of employer contribution and is paid by 23 per cent of businesses, with 68 per cent of firms paying in at least 5 per cent or more.

The study found that when employers contribute generously to an employee’s pension pot this has the effect of encouraging employees to top up their own contributions. “Increasing employer contributions from 1 per cent to 5 per cent could lift the proportion of staff topping up by 20 per cent,” the report found.

Companies that only make the 1 per cent minimum contribution have the lowest number of employees electing to top up their contributions. When businesses contribute 5 per cent, between 20 to 30 per cent of the workforce top up their employer contributions, while companies that contribute 10 per cent see 30 to 40 per cent of employees topping up their own contribution.

Angela Seymour-Jackson, managing director of Workplace Solutions at Aegon UK, said: “There appears to be a clear correlation between employer contribution and staff engagement, and employers now have more power than ever before to emphasise the importance of solid pension contributions.”