Automatic Enrolment: Increases in Minimum Workplace Pension Contributions
You may have heard radio advertising showing that as well as providing the teabags, employers need to provide their staff with a workplace pension.
The campaign calls for you to get to know your responsibilities when it comes to a workplace pension, but are you also aware of your responsibilities for the increase in minimum pension contributions on 6 April 2018?
Make sure you know how the increases apply to you and your staff, and start making preparations.
What you need to know
By law, on 6 April 2018, all employers will be required to increase the minimum contribution from the current level of 2% of qualifying earnings to 5%. Employers will be required to increase their contributions to at least 2% and their staff’s contribution will also be increased so that their contributions make up the shortfall needed to bring the total minimum contribution up to 5%.
Both the employer and staff member have the choice to contribute greater amounts to the pension if they wish. If the employer decides to contribute more than their required minimum amount, but less than the total minimum amount, then the staff member will only need to make up the shortfall between the total minimum and the employer contribution.
On 6 April 2019 the contribution levels further increase, where the employer will be required to pay a minimum of 3% with the total minimum contributions needing to reach 8%. The employer’s staff must then make up the 5% difference.
The table below shows the minimum contributions employers who set up a defined contribution scheme for automatic enrolment must pay, and the date when they must increase. This is calculated based on earnings between £5,876 to £45,000 per year (£490 to £3,750 per month, or £113 to £866 per week), and including certain elements of pay.
|Date effective||Employer minimum contribution||Staff contribution||Total minimum contribution|
|Until 5 April 2018||1%||1%||2%|
|6 April 2018 to 5 April 2019||2%||3%||5%|
|6 April 2019 onwards||3%||5%||8%|
Who do the increases in contributions apply to?
The increase in contributions applies to you if you have staff in an automatic enrolment pension scheme. Action must be taken by you, to ensure at least the minimum amounts are being paid. This applies whether you set up a pension scheme for automatic enrolment or you decided to use an existing scheme.
However, you don’t need to take any further action if you don’t have any staff in an automatic enrolment pension scheme, or if you and your staff are already paying at least the increased minimum amounts. Additionally, if you’re using a defined benefits pension scheme then the increases do not apply.
What can you do to prepare for the increases?
The increase in minimum contributions should be simple for you to do, but early preparation is key.
- It’s important that your payroll is ready to deduct the increased contributions when they rise in April 2018 and 2019, otherwise the workplace pension schemes used by you may no longer be qualifying, and the right contributions might not be paid across to the scheme at the right time.
- Your pension scheme should already be making necessary changes to support the increases, and will communicate this, but ultimately it’s still your responsibility to make sure:
- You’re using a qualifying scheme
- That the right amount of pension contributions are deducted
If your chosen pension scheme doesn’t support the increases, then you will need to talk to them about their options.
- When your staff were first automatically enrolled, the letter they received from you should have set out that contribution levels will increase over time. There’s no additional legal requirement for you to write to staff about the increases again, but it’s good practice to do so and may help minimise queries, or reduce the number of staff subsequently opting out.
Useful links for you
Guidance for employers: www.tpr.gov.uk/increase
For information relating to specific scheme rules, contact the pension scheme provider.
Source: The Pensions Regulator