Be ready for the increase in minimum contributions for auto enrolment pensions
By the end of March 2017 more than 7 million workers had been successfully automatically enrolled into a workplace pension. But from April 2018 the minimum pension contributions are set to increase. As an employer, what do you need to know to be ready for the change?
Currently the employers’ minimum contribution rate to an auto enrolment (AE) pension scheme is 1% of employees qualifying earnings. By law, on the 6 April 2018 you will be required to increase the value of the minimum contribution to your employee’s automatic enrolment pension to at least 2%. A further increase to 3% will come into place on 6 April 2019.
Staff contributions will also increase to 3% in April 2018, then to 5% in 2019 bringing the total minimum contribution levels to 5% and 8% respectively.
|Date effective||Employer minimum contribution||Staff contribution||Total minimum contribution|
|Until the 5 April 2018||1%||1%||2%|
|6 April 2018 to 5 April 2019||2%||3%||5%|
|6 April 2019 onwards||3%||5%||8%|
What do you need to do?
As an employer, you have two options. You can either pay the new minimum employer contribution, or you can choose to pay more than the new minimum.
Should you choose to pay more than the employer minimum contribution, your employees will only be expected to make up the difference between your contribution and the total minimum contribution.
You can choose to cover the full amount of the total minimum contribution, unless your scheme rules state that a contribution from staff is required.
Both you and your employees can pay more, so that the contributions exceed the total minimum contribution.
Schemes with different rules
If you already have a workplace pension scheme in place, that has been self-certified for use as an AE compliant scheme, the minimum contribution increase will vary depending on the type of scheme.
If your scheme does not meet the necessary contributions it cannot be used for auto enrolment, in which case it is best to contact your pension provider for advice.
Things to be aware of
Salary exchange schemes (salary sacrifice)
If the contributions being made by the employee increase to meet the new auto enrolment contributions, employers must ensure that their employees earnings do not fall below the National Minimum Wage or National Living Wages as a result.
Fixed monetary rate contributions
When first enrolled into an AE pension scheme, employees may have opted to contribute a fixed rate of their salary rather than a percentage of their overall earnings. In this case, it is important to check that their fixed contributions Meet the increase in contribution percentage.
As an employer, it is best to start thinking about the increases now, to allow plenty of time to ensure you are ready for the change at the beginning of April.
If we are your payroll provider we will ensure that your auto enrolment process is ready for the change, and notify you of any changes that are necessary. If we do not handle your payroll we recommend getting in touch with your payroll provider to ensure that they are prepared.
For more information on payroll, auto enrolment and the changes to the minimum contributions, please contact Susan Elsdon.