Minimum contributions are going up

Good news – by law, the minimum amount that must be paid into an employee’s pension went up again in April 2019. So, employers need to make sure they pay the correct amounts into their employees’ pension to remain compliant.

What are the minimum pension contributions and how do they affect you?

When employees are auto-enrolled into a pension (like The People’s Pension), by law there are set minimum amounts that need to be paid into their pension savings

The minimum amount that should be paid into employees’ pensions has risen from 6 April 2019 to a total minimum amount of 8% of an employee’s qualifying earnings. At least 3% must come from employers whilst employees make up the difference. These percentages can vary if an employer calculates contributions using different elements of pay. You can find out more about calculating pension contributions on The Pensions Regulator website.

    This means the amount the employer pays into a pension pot just got bigger. And when the employee makes up the difference and increases the amount they pay, the amount of money the government puts in (known as tax relief) goes up too.

    This is great news as it means employees will be getting even more out of their workplace pension.

    Benefits for pension members

    Think of it as ‘free’ money. It’s an even bigger helping hand to save for the lifestyle you want during retirement.

    For example, using basic rate tax relief, here’s how contributions would work if you pay £40 per month:

    This is a very effective way to save, so don’t lose it!

    If you don’t maintain the total minimum contribution levels, your employer doesn’t have to pay their minimum contribution levels (although if you continue to contribute – you’d still get tax relief from the government, topping up the amount you save).

    How you receive tax relief depends on how your employer deducts your pension contributions from your pay – before or after tax.

    Read more about tax relief on pension contributions

    What happens next?

    Find out ‘Why do I need a workplace pension?’ in under 3 minutes

    The increase occurred on 6 April 2019. Your employer may have written to you to tell you about the change.

    You won’t need to do anything – your employer will make the changes for you.

    This should mean you have more money put aside in your pension pot for when you retire.

    All contributions are paid into a pension account in your name, so it’s yours to keep. When you access your pension pot, you can use your savings to provide retirement benefits for yourself and if you wish, your dependants.

    Find out more about how pension contributions work

    How much you pay now, and in the future

    You and your employer may both pay more into your workplace pension – meaning you get more tax relief on your pension contributions.

    The table below shows how the levels of contributions would look if your employer pays the minimum percentages (based on qualifying earnings and the relief at source tax basis).These percentages can vary if an employer calculates contributions using different elements of pay. You can find out more about calculating pension contributions on The Pensions Regulator websiteIf you are looking at this table on a mobile, use your finger to scroll along the bottom to see all the contribution levels.

    Employer minimum contributionEmployee contributionTax relief on employee contributionTotal minimum contribution
    Up to 5 April 20192%2.4%0.6%5%
    6 April 2019 onwards3%4%1%8%

    How do I know if I’m saving enough for the future?

    The contribution increases are designed to help you save more – but what’s the right amount for you personally? Over half of UK adults believe they won’t have enough money to maintain their desired lifestyle in retirement.

    You’ve probably wondered how much you should save into your pension so you’ve enough to live on when you retire.

    Use our calculators to help check how much you’re likely to need in retirement, and therefore how much you need to save now…

    Can I increase my pension contributions?

    If you want to, you can pay more than the minimum into your pension pot by making additional contributions. You can ask your employer if they’ll facilitate additional contributions and if not, you can set up a Direct Debit.

    Find out more about additional pension contributions and the relief at source tax basis.

    What employers (and their advisers) need to do

    This is the second phase of the increases to workplace pension contributions introduced by the government. By now, employers who were around at the time of the 2018 minimum contribution increases should’ve been through the process already to remain compliant.

    Since February, the employer or their adviser have needed to log in to Online Services, where alerts inform them of the next steps, depending on how the account is set up. These alerts are to ensure employers remain compliant and are paying the correct amount. Once this has been done the alerts disappear.

    To help you with this, download our ‘Increases to minimum contributions’ guide

    • From 6 April 2019:
      The increase takes the total minimum contribution from 5% to 8% of qualifying earnings (of which employers must contribute at least 3%, whilst their employees make up the difference). These percentages can vary if an employer calculates contributions using different elements of pay. You can find out more about calculating pension contributions on The Pensions Regulator website.

    Remember – employers have a legal obligation to meet the new minimum contributions. If they don’t, we may report to The Pensions Regulator, as we have a duty to monitor contributions.

    An important note about contractual enrolment

    If employees have become members of their pension scheme through contractual enrolment, employers may need their consent to increase their contributions. This is only if the authority (usually through an employment contract to deduct pension contributions from their salary) didn’t include the phasing of minimum contributions in April 2019.

    Knowledge base: What’s contractual enrolment?

    Helpful resources for employers and advisers

    Although there’s no additional duties under auto-enrolment for employers to tell employees about the increase, they may wish to do so. This’ll help minimise queries and reduce the risk of some employees leaving their pension scheme.

    90% of employers told their employees about the increase in 2018*, and now there’s even more material to help you do this.

    To help employers raise awareness of the changes to minimum contributions for 2019, we’ve a communications toolkit packed with helpful content.

    Employers can use these materials in their communications:

    • Simple wording to put on employee payslips explaining the change
    • Posters to raise awareness in your workplace
    • Letter and email templates
    • Explanatory videos to share

    These downloads were some of the most popular on our website in 2018, and don’t just take our word for it:

    As a small organisation we are always really busy and having this available made my life easy.

    Chief Executive – Bow Housing Society Limited

    They were really straight forward to find which is something I love about The People’s Pension.

    Assistant Manager – TPS Group

    …easy to use and I will definitely use it again…

    Payroll Administrator – Lumen Electrical Ltd

    Where to find out more about the increases

    If you’ve any questions, it’s worth checking our knowledge base first, where you’ll find answers to all our most frequently asked questions.

    Download our ‘Increases to minimum contributions’ guide

    Check out our communications toolkit 

    Visit The Pensions Regulator website

    Email us at support@bandce.co.uk

    *Source: The People’s Pension quarterly customer satisfaction survey conducted August-September 2018.