Announcement: Final Government pahsed increase to Auto-enrolment pensions contributions

Do you need to do anything?

Please read this announcement carefully as it may affect you financially.
Provided you are happy for the minimum Employee contributions described on this Announcement below to proceed, you need take no action at all.

Should you not wish to do so, you will have no alternative other than to opt-out of the Scheme.  In this instance, please read the section below about how to opt-out as soon as possible, otherwise the extra contribution described herein will automatically be invested from your pay to your pension with effect from April 2019 by law.

The Background

As many of you will be aware, ieDigital has always been pro-active in taking on its Government pensions auto-enrolment duties for its Staff.  The Company has contributed 4% of your salary, an amount twice the minimum employer contributions mandated by law.

This final phase of the auto-enrolment rules mean that Employee Contributions are required to be a minimum amount no greater than 5% of your basic pay under the rules of our pension scheme with Aviva.

The new rules require a total minimum pension contribution of 8%, with the statutory minimum contribution for Employers increasing to 3%.  The Company has always invested a minimum of 4% of your basic salary into your pension scheme and this will continue, as well as investing the valuable add-on of 12.8% from the saving made on Employer’s National Insurance on all employee contributions that you make.

This means that, from April 2019, your actual minimum employee contribution to the pension scheme with Aviva will be increased from 1% to 4% of basic pay.

For those already contributing at least 4%
There is no need for any change.  However, you should note that should you wish to reduce contributions at any time in the future, your contributions cannot drop below the new minimum amount we are setting for the Scheme, which is detailed below.

For those contributing less than 4% to our pension scheme
With effect from your April pay, you will automatically have contributions deducted from your basic pay of 4%, added to your personal pension fund at Aviva.   You have been benefiting from our Company Contribution of 4% of your basic salary since joining the pension scheme and this continues from ieDigital.  Contributions invested to date will remain in your personal fund with Aviva and continue to attract investment returns up to retirement.

Also, the 4% contribution you will now invest will benefit your fund further by the addition of the Employer’s National Insurance at a rate of 12.8% added to whatever amount you invest.

Please note that, as we use salary sacrifice as our contributions method, you receive full Income Tax and National Insurance relief, which means a saving of 32% for basic rate taxpayers and 42% for higher rate taxpayers.  The table below shows how this works very much in your interests.
Also, the 4% contribution you will now invest will benefit your fund further by the addition of the Employer’s National Insurance at a rate of 12.8% added to whatever amount you invest.

Example of value to you

The pension scheme is extremely good value to you as an investment, because you make great tax savings in addition to the ieDigital contributions going to your pension fund.

For basic rate taxpayers your tax relief and resulting total contributions invested are very much in your interests and works as follows:

Example of £133.33 from your monthly pay – example is annual salary of £40,000:

A contribution rate of 4%, after allowing for the lower taxes you pay, actually costs you just 2.72% of your pay.

The above calculation is proportionately accurate for basic rate taxpayers.
It also shows that the equivalent growth on your own after tax cost is a huge 212.96%!  This is because you have a cost to you of just £90.66 for a total amount invested into your pension fund of £283.73 in the above table.
Thus, in principal, it is absolutely the case that investing into your pension makes sense for you and your Family’s financial future: there is nowhere better to invest for your retirement.  The Government knows this and that’s a key reason why Auto-enrolment was introduced.

The structure and contributions to your Aviva GPP demonstrate clearly the commitment that ieDigital wishes to provide for all of its Staff.  This recognises the huge value in making provision for your retirement.  As your Scheme Advisers at Patterson-Mills say at their presentations: most of us will actually retire.

Your options going forward

This means that there are now three options for those currently not contributing to the pension scheme going forward:

1. Accept automatic contributions being deducted from pay of the new minimum 4% with effect from April’s pay and continue to receive the Company Contribution of 4% plus the NIC savings, outlined in the table above.  For this, you need do nothing.
2. Choose to contribute in excess of the new minimum 4% to be added to the Company Contribution of 4% plus the NIC savings, in which case please inform jeanette@pattersonmills.com or,
3. Opt-out of the pension scheme, which also requires you to contact Jeanette (please see below)

It is very important to understand that, for those that do wish to “opt-out” of the pension scheme to avoid personal contributions, the Company will also no longer contribute to your Aviva Fund in the Scheme.  Your Aviva Fund itself would remain invested and still under the investment advice service from Patterson-Mills that ieDigital also pays for on your behalf.  You would be able to re-join the Scheme at any time in the future, subject to making the minimum contributions applicable at that time.

Those not already in the pension scheme

The Company operates a standard 3-month statutory postponement period for its Auto-enrolment obligations.  This means that if you were not on the ieDigital February 2019 payroll, your personal automatic enrolment to the ieDigital company pension scheme will happen with the May 2019 payroll.  Therefore, this Notice still may apply to you if you have not already made your contributions decision with our Advisers at Patterson-Mills, except that it is from the month following the Government rule change.

If you were to opt-out of the Scheme, you will find the minimum contributions will affect you only upon the tri-ennial automatic re-enrolment that all UK employers are obliged to undertake at the relevant time.  You would be informed about this directly by email as and when the occasion arises.

How to opt-out

Your Employer is not permitted by law to discuss opting-out of your company pension scheme and so you would need to contact jeanette@pattersonmills.com by email in the first instance.  Jeanette will inform you how to opt-out of the Scheme with specific statutory wording under the Government rules, which can only be done by you.  You are currently able to opt-out at any time, in respect of future payroll periods.

Why investing into your pension is such a good idea

Although both the Government and your Employer (as well as Patterson-Mills!) believe that it is certainly a good idea to remain a member of your company pension scheme – and the financial incentive is clear above – at this time, you cannot be forced to agree to make any contributions.

The table below summarises the minimum contributions changes referred to above, as relevant to your company pension scheme.

As always, if you have any queries regarding the above, please don’t hesitate to get in touch confidentially with Richard Glover in HR or indeed Chris or Edward at Patterson-Mills (who can be reached by email to chris@pattersonmills.com and edward@pattersonmills.com).
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