Increase to automatic enrolment minimum contributions
We’ve updated our systems to comply with the law around the minimum contribution increase under automatic enrolment. So, we’ve done our bit – now it’s time for you to do yours…
By law, minimum contributions will 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 you’re ready for the contribution increases so that the correct contributions are deducted at the right time, and that your pension scheme remains a qualifying scheme for members.
So what do I need to do?
You’ll need to log in to your Online Services account, where there will be alerts to tell you what you need to do depending on how your account is set up.
How to set up for the increase to minimum contributions
What you need to do depends on which journey applies to you.
Either way, you’ll need to make sure you’re paying higher contributions from the beginning of the payment period that includes the 6 April.
For example, if your pay period is 1-30 April, you’ll need to pay the higher contributions from 1 April.
Most employers will fit into one of two journeys:
- Journey 1 – If you’re set up on the current minimum contributions (1% employer, 1% employee based on ‘qualifying earnings’) and have just one worker group, we’ll increase the percentages on our system for you. All you need to do is log in to your Online Services account and confirm the changes.
- Journey 2 – if your scheme isn’t set up on the minimum contributions (e.g. different contribution rates, or not based on ‘qualifying earnings’) and more than one worker group – then you need to change the percentages on our system yourself. To do this, log in to your Online Services account and update your worker groups to make sure they meet the new minimums.
If your workforce is assessed by payroll software (and it works out your contributions) then you need to make sure you remain compliant. Get in touch with your payroll software provider to see how they’ll make sure this happens.
Tools to help you with the increase in pension contributions
Need help telling your employees about the change? Check out our template letters in the communications toolkit »
Although there are no additional duties under automatic enrolment for you to tell your employees about the increase to contributions, you may wish to do so. This will help minimise queries and reduce the risk of some employees deciding to leave their pension scheme.
Also there, you’ll find other helpful material like:
- Simple wording to put on employee payslips explaining the change
- Posters to raise awareness in your workplace
- An animation to explain the benefits of a workplace pension and how the change taking place in April affects them.
If you have any questions, it’s worth checking ‘help and support’ first, as we’ve got answers to all our most frequent questions.
How much do you need to pay currently – and what’s your commitment in the future?
How much you need to pay depends on how much each employee earns.
Qualifying earnings is the name given to a band of earnings you can use to calculate minimum contributions. For the 2017/18 tax year this is between £5,876 and £45,000 a year. So currently, you’re not required to pay anything on the first £5,876 they earn a year, or on anything they earn above £45,000 a year. The government will review the figures every year.
Until 5 April 2018 you must pay at least 1% of any earnings in-between those two figures. So, if an employee earns £15,876 a year, you have to pay at least 1% of £10,000.
From 6 April 2018 and 6 April 2019, you must make at least the ‘employer minimum contribution’ in to their pension as shown in the table below. Then the total contribution is reached by adding the employee’s contribution (deducted from their earnings) and tax relief from the government.
And, if you wish, you can choose to pay the full amount yourself (5% from 6 April 2018 and 8% from 6 April 2019) so your employees don’t have to – as an important employee benefit, this may help your recruitment efforts.
The table below is based on an employer calculating their minimum pension contributions on qualifying earnings. These percentages can vary if an employer calculates contributions using different elements of pay. The Pensions Regulator website tells you more about calculating pension contributions.
|Employer minimum contribution||Employee contribution||Tax relief on employee contribution||Total minimum contribution|
|Until 5 April 2018||1%||0.8%||0.2%||2%|
|6 April 2018 – 5 April 2019||2%||2.4%||0.6%||5%|
|6 April 2019 onwards||3%||4%||1%||8%|
This table is based on the ‘tax relief at source’ method of claiming tax relief. Read more on the two methods of tax relief.
However, if the current contributions from you and your employees already meet the minimum requirements for April 2018 and April 2019, you will not have to take any action. Although you may wish to continue to pay contributions above the minimum levels so that your employees continue to enjoy an enhanced employee benefit.
An important note about contractual enrolment
If your employees have become members of their pension scheme through contractual enrolment, you may need your employees’ consent to increase their contributions. This is only if the authority (often obtained via the terms of employment contract to deduct pension contributions from their salary) did not include the phasing of minimum contributions in April 2018 and April 2019.
Need to know more about contribution increases?
Visit Help and support: Contributions »
Or for more guidance, download the Increases to minimum contributions guide »
Check out our communications toolkit »
Read what we’re telling employees about these contribution increases »