Increase to your clients’ automatic enrolment minimum contributions
You might already be aware that minimum contributions under automatic enrolment will be going up.
What this means for employers
When automatic enrolment was introduced, the government set:
- the minimum total contribution and minimum employer contribution to be paid into an automatic enrolment pension scheme
- how minimum contributions will increase gradually to help employers and employees spread the cost of contributions.
Minimum contributions are required to increase in two phases – 6 April 2018 and then again on 6 April 2019. This has been known as ‘contribution phasing’.
It’s important that your employer clients are ready for the contribution increases so that the correct contributions are deducted at the right time and that their pension scheme remains a qualifying scheme for members.
Some important information and dates
The increases were originally planned to start in October 2017, so your client’s preparations may already be underway.
However, the date was changed and the increase will now align with the start of each tax year as well as the payroll year (this makes it easier for payroll software to manage the changes).
It’s important for your client to start thinking about the increases and to note this change in date. Their company payroll will need to be aware so they can make any necessary adjustments, as will their IT department if they have bespoke payroll software.
So what happens next?
Your client might want to start planning ahead for the next two minimum contribution phases. Your client must take action to ensure at least the minimum amounts are being paid to their employees.
- From 6 April 2018:
The first increase will take the total minimum contribution from 2% of qualifying earnings to 5% of qualifying earnings (of which employers must contribute at least 2% of qualifying earnings whilst their employees make up the difference of 3%).
- From 6 April 2019:
The second increase will take the total minimum contribution from 5% of qualifying earnings to 8% of qualifying earnings (of which employers must contribute at least 3% of qualifying earnings whilst their employees make up the difference of 5%).
Before the end of the year, employers should receive a letter from The Pensions Regulator to remind them about the increases to contributions. Although there are no additional duties under automatic enrolment for employers to advise their employees about the increase to contributions, they may wish to do so. This will help minimise queries and reduce the risk of some employees deciding to opt-out of their pensions.
More support on contribution increases
To help employers communicate the contribution increases to their employees, we’ll be providing template letters for them to use. And we’ll support them with other materials in the coming months, too.
The Pensions Regulator’s website provides more information on contribution increases.