Increase to Auto Enrolment Minimum Contributions

Automatic enrolment (auto enrolment) has been in place for a couple of years, giving nearly everyone access to a workplace pension. It’s compulsory for every employer to put a workplace pension in place and from 6th April 2019 final planned increase to minimum contributions comes in to effect.

What’s changing?

Contributions are the amounts paid to the pension scheme. They’re a percentage of your salary and depending on the scheme used may include overtime and other additional payments.


Employee contributions are deducted from your salary but you get tax relief, so the government tops up your contribution.


Employer contributions are made on top of the salary etc.


Currently for the 2018-19 tax year contributions are 5% - 6% for some plans, with the employer having to contribute at least 2% of that (3% of 6% plan).


From 6th April 2019 this will rise to a total contribution of 8% - 9% for some plans, with the employer having to contribute at least 3% of that (4% of 9% plan).


The total minimum contributions are set by the government, with a minimum employer contribution, but the employer could choose to contribute all of the minimum total contribution or a higher percentage. 


A decent pension contribution can be an attractive benefit and shows that you’re willing to invest in your employees.

 
How will that affect me?

This shows the effect of the two most common contribution bases:


CONTRIBUTIONS CALCULATED ON GROSS EARNINGS:

You calculate contributions based on gross earnings. You don’t include bonus, overtime, commission or certain staff allowances (such as shift pay or relocation allowance) in the calculation.
 
From the new tax year, those minimum contributions are increasing:

 

Employer min

Employee min

Total minimum contribution

     Current

   3%

   3%

   6%

     Tax year 2019/20

   4%

   5%

   9%


 
CONTRIBUTIONS CALCULATED ON TOTAL EARNINGS:

You calculate contributions based on ALL elements of staff pay AND all earnings.
 
From the new tax year, those minimum contributions are increasing:

 

Employer min

Employee min

Total minimum contribution

     Current

   2%

   3%

   5%

     Tax year 2019/20

   3%

   5%

   8%


 
What to do next

If you’re an employer - you need to be aware of the contribution increase and whether you’re affected. If the total contributions on your scheme already cover the increase you’re fine.


If they don’t, you need to firstly make sure you’re meeting the minimum contributions. Then decide if you’d like to absorb any of the employee’s increase. Finally, you need to tell any affected employees that their/your contributions are changing and update your payroll system and pension scheme for it. The scheme will probably highlight who’s affected so that’s a good first port of call.
 
If we take care of your payroll we’ll be in touch shortly to confirm the changes to the minimum contributions.  If any of your employees want an idea of what the contributions will look like we can put that together for you.


If we don’t do your payroll already and you’d like help with working through your options we’re always here.
 
If you’re an employee - your employer will tell you if your contributions will increase. This means your deductions will be higher, so you may have less pay to take home, though the tax-free personal allowance is also increasing. You should look at what this means to your budget and make sure you can afford it - your employer should be able to give you a figure. If you think you can’t talk to your employer - they can’t give you direct advice but can give you information about your options. You can also talk to your pension provider about your options.

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