Increases in minimum contributions
27 November 2017
This article was featured in the December 2017/January 2018 issue of the magazine.
The Pensions Regulator provides advice on automatic enrolment for those that have clients
If you have clients many of them may have heard radio advertising showing that as well as providing the teabags for their staff they need to provide their staff with a workplace pension. The campaign calls on them to get to know their responsibilities when it comes to a workplace pension, but it’s important that they also know what to do to comply with the increases in minimum pension contributions which take place on 6 April 2018.
Make sure your clients understand how the increase will apply to them and their staff, and help them to prepare.
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 need to increase their contributions to at least 2% and their staff’s contribution will 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.
...must take action to ensure at least the minimum amounts are being paid
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 shows the minimum contributions employers that 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.
The increase in contributions applies to all your clients with staff in an automatic enrolment pension scheme. They must take action to ensure at least the minimum amounts are being paid. This applies whether they set up a pension scheme for automatic enrolment or they use an existing scheme.
However, your clients don’t need to take any further action if they don’t have any staff in an automatic enrolment pension scheme, or if they and their staff are already paying at least the increased minimum amounts. Additionally, if they’re using a defined benefits pension scheme then the increases do not apply.
The increase in the minimum contributions should be simple for your clients to do, but early preparation is key.
It’s important that your client’s payroll is ready to deduct the increased contributions when they rise in April 2018 and 2019, otherwise the workplace pension schemes used by your clients may no longer be qualifying, and the right contributions might not be deducted at the right time.
Your client’s pension scheme should already be making necessary changes to support the increases, and will communicate this; but, ultimately, it's still your client's responsibility to make sure they're using a qualifying scheme and that the right amount of contributions are deducted.
When your client’s staff were first automatically enrolled, the letter they received from your clients should have set out that contribution levels will increase over time. There’s no additional legal requirement for your client to write to their staff about the increases again, but it is good practice to do so to and may help minimise queries, or reduce the number of staff subsequently opting out. A helpful letter template is available on The Pensions Regulator website at http://bit.ly/2hgZe0Q.
If your client has chosen to use certification, it's possible that the certification period may include one or both of the increases in the minimum contribution levels. Your client can approach their pension provider or payroll provider for help.
Originally the first phase of the contribution increases was due to start from October 2017 but in April 2015 these dates were changed by the government to start from 6 April 2018. Those that may have been planning to make the increases from October 2017 can make the increases from this date if they wish to. Your clients should speak to their scheme provider and payroll provider to find out how to do this.
|Date effective||Employer minimum contribution||Staff contribution||Total minimum contribution|
|Until 5 April 2018||1%||1%||2%|
|Until 5 April 2018||2%||3%||5%|
|6 April 2019 onwards||3%||5%||8%|
Guidance for business advisers can be found here: www.tpr.gov.uk/phase.
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*content correct at time of publishing