The ‘Staging’ process for the auto-enrolment of workers into a workplace pension scheme is now coming to an end. Most employers will therefore have a qualifying workplace pension up and running.
The next milestone is the staged increase to the minimum contribution levels for both employers and employees. Employers will receive a letter from The Pensions Regulator (TPR) explaining the changes.
New contribution rates will apply from 6 April 2018 and the rate will depend on the earnings set used for your pension scheme. The table below will help you identify the earnings set and the minimum workplace pensions contribution rates that apply to your qualifying scheme.
|Earnings set||Pensionable earnings definition||Min. contribution to 5 April 2018||Min. contribution 6 April 2018 to 5 April 2019||Min. contribution 6 April 2019 onwards|
|Qualifying earnings||Based on total earnings, less the lower earnings level and capped at the upper earnings level||2% – with employer’s contribution at least 1%||5% – with employer’s contribution at least 2%||8% – with employer’s contribution at least 3%|
|Set 1||Based on employee’s basic pay||3% – with employer’s contribution at least 2%||6% – with employer’s contribution at least 3%||9% – with employer’s contribution at least 4%|
|Set 2||Based on employee’s basic pay. This set can only be used if the combined total pensionable earnings of all employees in the group is at least 85% of their combined total earnings||2% – with employer’s contribution at least 1%||5% – with employer’s contribution at least 2%||8% – with employer’s contribution at least 3%|
|Set 3||Based on total earnings||2% – with employer’s contribution at least 1%||5% – with employer’s contribution at least 2%||7% – with employer’s contribution at least 3%|
More about contributions
- Both employers and employees can choose to pay more than the minimum level stated
- By law, a total minimum amount of contributions must be paid into the scheme
- The employer must make a minimum contribution towards this amount
- Employees must make up the difference between the employer contribution and the total minimum contribution
- If an employer decides to cover the total minimum contribution required, the employee won’t need to pay anything.
What do employers need to do?
- Identify which of the increases above apply to your workplace pension scheme
- Work out which staff members are affected and what contributions will have to be made. TPR have an online calculator to help you work out minimum employer contribution amounts
- Communicate with payroll to make sure any changes are set up and ready by 6 April 2018
- Give employees plenty of notice about the new rates that need to pay. A sample letter is available from TPR to help with this
- Talk to your workplace pension scheme provider.
A reminder about employer obligations
- Employers have a legal duty to make sure the correct contributions are being paid from 6 April 2018
- If you don’t comply, it could lead to legal action from The Pensions Regulator resulting in fines.
Get advice if you are in any doubt
If you are unsure about anything relating to the contribution changes, then talk to your financial adviser or workplace pension scheme provider. Visit TPR online for more information on auto-enrolment and the contribution increases.