Automatic enrolment minimum contribution increases
13 March 2017
All employers will need to work out how these change will apply to them and their staff, and what they need to do to make sure they are ready. Find out what your client needs to do and how you can support them.
The Pensions Regulator has provided an article on the minimum increases due in 2018 and 2019.
"By law, on 6 April 2018, all employers are required to increase their contributions into their staff's automatic enrolment pension to at least of 2%. Staff contributions will also increase so that their contributions make up the shortfall needed to bring the total minimum contribution up to 5%.
Contribution levels will rise again on 6 April 2019, with your client paying a minimum of 3% towards the pension, and the total minimum contribution reaching 8% - with staff making 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 £5,824 to £43,000 per year (£486 to £3,583 per month, or £112 to £827 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% |
Your clients may have agreed with their scheme provider to calculate minimum contributions in a different way.
For example, if your clients have used certification to allow an existing scheme to be used for automatic enrolment, then it's possible that the certification period may include one or both of the increases in the minimum contribution levels. If this is the case you will need to apply different increases. More information about this is on The Pensions Regulator’s website. If your clients are unsure they should check their scheme rules, and speak to their pension provider if they need extra help with this.
What will my client need to do?
Your client can choose to pay the full amount of the total minimum contribution. This may mean staff do not have to pay in at all, unless the scheme's rules say that they have to make contributions. Both your client and their staff can choose to contribute more than the minimum amounts to the pension if they want to.
If your client pays in more than their legal minimum contribution, but less than the total minimum contribution shown in the table, then their staff will need to pay in at least enough to make up the shortfall between these amounts.
Supporting your clients with the increases
The increase in minimum contributions should be simple to do, but your clients need to start thinking about the increases early, and plan ahead for when they come into effect in April 2018 and April 2019.
It’s possible that your clients may have been planning to make the increases from October 2017, as this was the original date for the first phase of the increases. However this date was changed by the government to start from 6 April 2018. If your clients would still like to make the increase from this date, they can. They should speak to their pension and payroll providers to find out how to do this.
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It’s important that their workplace pension schemes and payroll software are able to support the contribution increases by 6 April 2018, otherwise the schemes used by your clients may no longer qualify for automatic enrolment, and the right contributions might not be deducted at the right time.
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Pension schemes should already be making necessary changes to support the increases, and will communicate this, but it's still your client's responsibility to make sure they're using a qualifying scheme, and that the right amount of pension contributions are deducted. If your client’s chosen pension scheme does not support the increases, then your clients will need to talk to them about their options.
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While there is no legal requirement for your clients to write to their staff, this is something they may want to consider doing to help minimise queries, or reduce the number of workers who decide to leave their schemes as a result of the increases. Your client’s pension scheme should be able to help with this.
Pro-rated contributions
It's possible that the increases will take place part way through a worker's pay period. For example, your client could have a pay period of 1 to 30 April, with the increases effective from 6 April. In these circumstances, the contribution for the pay reference period up to 6 April would be calculated based on the old rates, and from 6 April up to the end of the pay reference period being based on the new rates.
If your client's payroll does not process pro-rated contributions, they should talk to the pension provider and payroll provider, and agree how best to deduct the amount due.
Further information
Guidance for business advisers: www.tpr.gov.uk/phase
Guidance for employers: www.tpr.gov.uk/increase
For information relating to specific scheme rules, contact the pension scheme provider."