From the date your automatic enrolment duties start, you will be required to contribute to your employees’ pension pots on a regular basis. So how much will you need to pay currently – and what’s your commitment in the future?
Explaining your contribution to employees’ pension pots
What you must pay and your options
How much you need to pay depends on how much each employee earns.
You don’t pay anything on the first £6,136 they earn a year, or on anything they earn above £50,000 a year. What you do pay is at least 3% of any earnings in between those two figures.
So, if they earn £16,136 a year, you have to pay at least 3% of £10,000. These payments are known as ‘contributions’ and are set by the government each year.
There are two ways you can sign up for The People’s Pension, which have different approaches to paying into employee pension pots.
The minimum contributions have been introduced in 3 stages.
As an employer, you have to make the ‘Employer minimum contribution’ shown below, and then the total contribution is reached by adding the employee’s contribution (deducted from their earnings) and tax relief from the government.
However, if you wish you can choose to pay the full amount yourself so your employees don’t have to.
|Employer minimum contribution||Employee contribution||Tax relief on employee contribution||Total minimum contribution|
|Until 5 April 2019||2%||2.4%||0.6%||5%|
|6 April 2019 onwards||3%||4%||1%||8%|
Helping you with tax relief
The government gives tax relief to employees on the amount of money they contribute to their pension pots.
So when you set up your pension scheme, you have to choose one of the two tax relief methods available.
- The table above is based on the relief at source method, where you deduct employee contributions after their earnings are taxed. Then The People’s Pension claims back the basic 20% tax rate in tax relief for all employees – even those who don’t earn enough to pay tax – and adds it to each pension pot. Higher rate taxpayers can then claim the rest of their tax relief through their tax return.
- The alternative is net pay arrangement. This is the more direct method, where you provide employee contributions before tax is taken, but it does mean lower paid employees who don’t pay tax won’t receive any tax relief