Under auto-enrolment all employers have to automatically enrol certain staff into a pension scheme and make minimum contributions into that scheme. From 6 April 2018 these minimum contributions will increase, and employers need to take steps now to ensure they comply with this change.
Who do the increases apply to?
The increase in minimum contributions applies to all employers with staff who would be required to be enrolled in a pension scheme for auto-enrolment. This is regardless of whether the scheme was set up specifically for auto-enrolment or is a pre-existing scheme that has been self-certified (see below).
However, the following will not be affected by the increase:
- Employers with no staff in a pension scheme for auto-enrolment purposes.
- Employers already paying above the new minimum contributions.
- Defined benefit pension schemes.
- Employees not covered by auto-enrolment, but who have asked to be put into a scheme that their employer does not have to pay into.
What are the new minimum contribution rates?
The law requires minimum pension contributions under auto-enrolment to increase on certain dates. The next scheduled increases are on 6 April 2018 and 6 April 2019.
The current and scheduled minimum contributions are:
Employer minimum contribution
Total minimum contribution
Up to 5 April 2018
|6 April 2018 - 5 April 2019||2%||3%||5%|
|6 April 2019 onwards||3%||5%||8%|
All auto-enrolment pension schemes will need to meet the total minimum contribution and employer minimum contributions from these dates if they are to remain a qualifying scheme.
There are some points for employers to be aware of:
- As is currently the case, employers and employees can choose to pay more than the minimum contributions if they wish.
- Employers may, for example, decide to cover the increase in the total minimum contributions in April 2018 and 2019 so that their employees are not required to make higher contributions.
- Where an employee’s pay-period spans 6 April a pro-rated pension contribution may be required. This should be calculated using the old rates up to 6 April and the new rates from 6 April to the end of the pay-period.
It should also be noted that minimum contributions may vary from those in the table above. In particular:
- The staff contribution rate may vary depending on the type of tax relief applied by the pension scheme.
- Employers may have agreed with their pension scheme to base minimum contributions on different elements of staff pay.
Employers should check their scheme documentation or contact their pension scheme provider to confirm their obligations.
What about self-certified schemes?
Instead of setting up a new pension scheme, employers who already had workplace pension schemes in place may have self-certified these for use under auto-enrolment.
Self-certified schemes will also see a rise in minimum contributions, but the exact rates will differ depending on the type of scheme. More information can be found here on the Pensions Regulator website.
What should employers do now?
Pensions schemes should already be making the necessary changes to support the increase in minimum contributions and update employers. However, it remains the employer’s responsibility to ensure they comply with the requirements of auto-enrolment and that the correct pension contributions are made. Those who do not do so are liable to fines.
Employers should therefore prepare for the increase in minimum contributions early and ensure that their systems are updated for when they come into effect.
In particular, employers should:
- Establish their new minimum contributions and to which staff they apply.
- Decide whether they will cover the full increase in total minimum contributions, or require staff to increase their contributions (which may require consultation).
- Check that their payroll provider (if outsourced) or software (if in house) is ready to calculate and deduct the increased contributions from 6 April 2018.
- Inform employees of the increases – though there is no strict legal requirement for this, it is advisable. Pension schemes may be able to support you with communications to employees and the Pensions Regulator also provides a template letter.
- If an employee pay-period spans 6 April, confirm whether payroll can handle pro-rated contributions. If not, it may be necessary to apply the increased rates for the whole period.
Businesses should consult their scheme documentation or pension scheme provider if uncertain as to their obligations under auto-enrolment.
 Employers must automatically enrol all staff who are:
- aged 22 to state pension age.
- working in the UK under a contract of employment, or under a contract to provide work or services that cannot be delegated to someone else (’workers’ for employment law purposes)
- earning over £10,000 a year (for 2017/18).
 The percentages in the table apply to any qualifying earnings (broadly wages, bonuses, overtime and certain statutory payments) between £5,876 and £45,000 (for 2017/18).