Employers may be required to increase the amount of their contributions into their automatic enrolment pension.
Staff members will have to make up whatever shortfall remains of the new total minimum contribution.
The contribution levels continue to rise until the employer is paying a minimum of 3% towards the pension and the total minimum contribution reaches 8% – with the member of staff making up the rest.
If the employer pays the same as the minimum total contribution then the member of staff will not need to pay any contributions, unless the scheme rules require a contribution. Both the employer and staff member can choose to contribute greater amounts to the pension if they wish.
If the employer contributes more than their required minimum amount – but less than the total minimum amount – then the staff member only needs to make up the shortfall between the total minimum and the employer contribution.
The table below demonstrates the phases of contribution increases, with the employer paying only their minimum, and the staff contribution shown in brackets (the difference between the total minimum and the employer minimum):
Supporting employers with the changes, the increase in the minimum contributions should be simple to do, but early preparation is needed. It is the employer’s responsibility to ensure that the pension scheme they use to meet their duties is a qualifying scheme, and that pension contributions are deducted correctly – but pension scheme trustees and providers, and payroll providers, have a key role in making the process work smoothly.
We expect that schemes should help support employers with communications to members, either by providing template letters or handling the direct communications for them.
If the pension scheme being used for automatic enrolment requires contributions at the current minimum amount then the increased minimum contribution levels will need to be reflected in the pension scheme’s rules and other governing documentation in time for 6 April 2018 and 6 April 2019. In most cases, changing the scheme rules and governing documentation will be the responsibility of the pension scheme trustees or managers. Then in order to ensure that the amount due under the scheme rules or governing documentation are paid across to the scheme on time, the employer’s payroll will need to be ready to calculate and deduct the increased contributions when they rise in April 2018 and 2019.
It is important that pension schemes and payroll products support the contribution increases, otherwise the workplace pension schemes used by your customers may no longer be qualifying, and the right contributions might not be deducted at the right time.