PENSIONS INSIGHT
Increases to AE minimum contributions
The Pensions Regulator outlines the changes ahead
B y law, on 6 April 2018, all employers are required to increase their contributions into their staff’s automatic enrolment (AE) pension to at least 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 employers 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. Employers may have agreed with their scheme provider to calculate minimum contributions in a different way. For example, if an employer has used certification to allow an existing scheme to be used for AE, 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, the employer will need to apply different increases. More information about this is on The Pensions Regulator’s website. If an employer is unsure they should check their scheme rules and speak to their pension provider if they need extra help with this. Employers 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 the employer and their staff can choose to contribute more than the minimum amounts to the pension if they want to. ...employer and their staff can choose to contribute more than the minimum amounts... If an employer 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. The increase in minimum contributions should be simple to do, but employers – including your clients if you have any – 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 employers – and 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. Although this date was changed by the government to start from 6 April 2018, employers and clients can make the increase from October 2017, if they wish. They should speak to their pension and payroll providers to find out how to do this. It’s important that workplace pension schemes and payroll software are able to support the contribution increases by 6
April 2018, otherwise the schemes used by employers and your clients may no longer qualify for AE, and the right contributions might not be deducted at the right time. Pension schemes should already be making necessary changes to support the increases, and will communicate this. It is, however, still the responsibility of employers and your clients to make sure they’re using a qualifying scheme, and that the right amount of pension contributions are deducted. If the chosen pension scheme does not support the increases, then employers and clients will need to talk to the scheme about their options. While there is no legal requirement for employers and 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. The pension scheme should be able to help with this. It’s possible that the increases will take place part way through a worker’s pay period. For example, an employer could have a pay period of 1–30 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 the employer’s or 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. n 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.
Employer minimum contribution
Staff contribution
Total minimum contribution
Date effective
Until 5 April 2018
1% 2% 3%
1% 3% 5%
2% 5% 8%
6 April 2018 to 5 April 2019
6 April 2019 onwards
| Professional in Payroll, Pensions and Reward | April 2017 | Issue 29 36
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