Auto Enrolment Contribution Increases

07 Jun 2017

Auto Enrolment minimum contributions must increase from the current minimum rates on 6 April 2018 and again on 6 April 2019. As such in order to remain a qualifying scheme, all automatic enrolment pension schemes with contribution rates below the new minimums must increase.

The minimum employer contribution rates are just that. If an employer decided to pay more than the minimum in many circumstances it will give their pension a competitive advantage over a competitor employer as the majority of employers who first set up a pension scheme from their Auto Enrolment date did so based on the minimum employer contribution rates.

Clearly planning how to incorporate this additional cost within the overall remuneration strategy and budgets is best commenced as early as possible to ensure the impact is understood by all those involved and can be managed as effectively as possible.

Definitions of pay

To recap the contributions rates can be based on various definitions of pay as follows:

Qualifying Earnings: ALL earnings between an upper and lower limit, currently £5,876 to £45,000 per annum

Set/Tier 1: Basic Salary i.e. not including bonus, overtime, commission or certain staff allowances (such as shift pay or relocation allowance).

Set/Tier 2: Basic Salary i.e. not including bonus, overtime, commission or certain staff allowances (such as shift pay or relocation allowance) as long as these equate to at least 85% of total pay. A regular check will need to be done for all staff in the scheme to ensure their basic salaries when added together equate to at least 85% of their total earnings.

Set/Tier 3: ALL earnings without any upper or lower limits

Minimum contribution rates

Qualifying Earnings and Set/Tiers 2 and 3 

Transitional PeriodDurationTotal Minimum ContributionEmployer Minimum Contribution
1Until 5th April 20182%1%
2From 6th April 20185%2%
3From 6th April 20198%3%

 Set/Tier 1 ONLY

Transitional PeriodDurationTotal Minimum ContributionEmployer Minimum Contribution
1Until 5th April 20183%2%
2From 6th April 20186%3%
3From 6th April 20199%4%

 

The increase in minimum contributions should be simple to arrange as most payroll systems have the capability to adjust the rates automatically at the right time. However it would be wise to check this with your provider as soon as possible to ensure the correct contributions will be deducted and paid over to the pension scheme from April 2018.

Employee Communication

When a member of staff was first automatically enrolled, the letter they received from you or your Pension Provider will have confirmed that contribution levels will increase over time. There are no specific additional employee communication duties relating to notification of the increases but we strongly recommend that you do inform staff well in advance of the change in order to minimise disruption and queries.

If you require any information relating to the increases to the Auto Enrolment pension contributions and/or the communication of the changes to employees please contact the team on 01883 332260 or info@wingatebs.com

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