Minimum Pension Contributions Increase – Your Questions Answered
The minimum pension contributions for automatic enrolment pension schemes are due to increase at set times this year and next. All employers are required to make the minimum employer contributions to the workplace pension scheme for all qualifying staff. It is your responsibility as an employer to make sure that the correct increases are put in place.
When Do The Minimum Pension Increases Take Effect?
The first pension contribution increase comes into effect on 6th April 2018 and will take the total minimum contribution from 2% up to 5%. The second pension contribution increase is due on 6th April 2019 and takes the total minimum contribution to 8%.
The first increase is made up of a minimum of 2% from the employer, the remainder being paid by the employee. The second increase in 2019 takes the Employers contribution to 3%. These are minimum amounts, the employer may pay more with the balance being made up by the employee.
Who Does This Apply To?
Whether you have set up a pension scheme for automatic enrolment or you decided to use an existing scheme, this applies to all employers with staff in a pension scheme for automatic enrolment. You must take action to make sure at least the minimum amounts are being paid into their pension scheme.
If you don’t have any staff in a pension scheme for automatic enrolment or you are already paying above the increased minimum amounts you don’t need to do anything. The increases do not apply if you’re using a defined benefits pension scheme.
What Do You Need To Do?
Before 6 April 2018 you need to make sure the increases are implemented. You will also need to repeat these steps before 6 April 2019.
- Work out which increases apply to you. If you are not sure then you should check your scheme documents or speak to your pension scheme provider.
- Work out which staff it applies to. Increased contributions need to be paid for all staff who are in a pension scheme you pay into including new joiners. The increases do not apply to staff who requested to join a scheme that you don’t have to pay into.
- Make sure the way you calculate contributions and pay them to the pension scheme is ready for 6 April 2018
- Depending on your agreement with your pension scheme, they may have made the required changes to process the increases and will contact you to tell you what you need to do and what you need to do.
How Do You Calculate The Minimum Pension Contributions?
Usually when you are calculating contributions for this type of scheme you include the following:
- statutory sick pay
- statutory maternity pay
- ordinary or additional statutory paternity pay
- statutory adoption pay
You should also check your scheme documents to find out what elements of staff pay your scheme uses. If you are still unsure speak to your scheme provider.
What Are the Increases?
The amount paid into your pension scheme varies depending upon the type and rules of the scheme you have chosen. This inofrmation will be in your scheme documents. Again if you are unsure, speak to your scheme provider who will be happy to help.
Generally employers use a pension schemes that requires a minimum of 2% contribution to be paid. The calculation for this type of scheme is based on a specific range of earnings. For the 2017/18 tax year this range is between £5,876 and £45,000 a year.
By law a total minimum amount of contributions must be paid into the scheme. You must make a minimum contribution towards this amount and your staff member must make up the difference. If you decide to cover the total minimum contribution required, your staff won’t need to pay anything.
The rates are currently a minimum of 1% from the employer and 1% from the employee making up a total minimum of 2%. From 6 April 2018 this changes to a minimum of 2% from the employer and 3% from the employee making up a total minimum of 5%. From 6 April 2019 this changes to a minimum of 3% from the employer and 5% from the employee making up a total minimum of 8%. Staff contribution rates may vary depending on the type of tax relief applied by your scheme. If you are unsure check your scheme documents.
When Do You Have To Pay The Minimum Pension Contributions Into the Scheme?
Employers must pay employee pension contributions into the company pension scheme on time.
There are different rules depending on how you pay the contributions into the workplace pension scheme.
If you pay by cheque then an employee’s contribution must be paid into the company pension scheme by the 19th day of the month following the date on which the contributions were deducted from salary.
If you pay the employee’s contributions into the scheme by any other method, then the employee’s contribution must be paid by the 22nd day of the month following the date on which the contributions were deducted.
Employer contributions must be paid by the date you agreed with the pension provider. However The Pensions Regulator states that ‘in practice it makes it easier if you pay them on the same date as your worker contributions.’
Who Do You Need To Tell?
You must inform their employees about these changes and of any contribution increases being applied to their employer pension contributions. The Pensions Regulator has a template you can download and edit as required – Pensions Regulator Template
Your pension scheme provider may also write to your staff or advise you about what to say. .You must not encourage employees to opt out as this is forbidden and you risk being fined by The Pensions Regulator.
What Happens If You Don’t Do It?
It is your legal duty to make sure the right minimum contributions are being paid from 6 April 2018. If you don’t do this it could result in heavy fines.
Failure to apply the increase in minimum pension contributions will mean that a scheme is no longer a qualifying automatic enrolment pension scheme. It remains the employer’s responsibility to check that the increase in contributions has been correctly applied to their workplace pension scheme.
The above information is for guidance only, for further information please consult your pension provider or go to the following pages:-
You can also book a free consultation with Farries Bookkeeping Services for further information