News | 08/02/2019

Automatic-enrolment pension contribution rates to rise from 6th April 2019

In 2018, employee contributions to automatic-enrolment workplace pension schemes reached an all-time high with more than seventy per cent of the workforce becoming pension scheme members.

The intention has always been that employer and employee minimum contribution rates would increase over time with the belief that this slow increase would reduce opt-out rates. The last minimum rate increase, also known as ‘phasing’, happened in early April 2018, and another one is scheduled for this year on 6 April 2019.

The law requires employees and employers to contribute a minimum amount of earnings to a workplace pension scheme. Employers are further obligated to make sure all their employees correctly make the minimum compulsory contributions without failure.

The table below shows the current auto-enrolment contribution rates and the new contribution rates that come into force from 6th April 2019 onwards:

Phase Date

Minimum Contribution
(Employers)

Contribution Rate
(Employees)

Total Minimum
Contribution

6 April 2018 to 5 April 2019

2%

3%

5%

6 April 2019 onwards

3%

5%

8%

 

Although employers have their minimum contribution rate, the law allows employers to contribute more to reduce the employee contribution overhead. If, for example, an employer contributes more to the pension scheme than the required minimum (more than 3%), but below the 8% total minimum contribution requirement, the employee will only be obligated to make up for the deficit.

Employers can decide to pay the total minimum contribution in full to offset their employees’ contribution. Also, the law allows both employees and employers to agree to make more than the required minimum contribution rates.

Available options to meet the minimum contribution rate increase

  • Employers have the option to pay part of the employee minimum contribution or the full amount so that their employees don’t have to pay anything.
  • You can pay part of the mandatory employee contribution and employees will make up for the balance.
  • The employer can pay the mandatory minimum contribution rate only.

Make the scheduled contribution rate increases known to your employees

The 6th April 2019 deadline is around the corner, and it is important for you to inform your employees about the phased contribution rate increase as it will have a direct impact on their earnings. The Pensions Regulator has put together a template letter you can use to tell your employees about this change.

You should also make sure you have communicated the scheduled changes with your payroll provider in plenty of time.

Summary

As from 6th April 2019, the minimum compulsory pension contributions also known as automatic-enrolment will increase to 8%.  The minimum employer contribution will increase from the current 2% to 3%, while the minimum employee contribution will rise to 5% from the current 3%, translating to 8% total minimum contribution.

Since there are more than ten million people in pension schemes, employers are required to advise their employees about this change and what it means. It is a legal requirement for minimum contribution rates to increase over time, and employers are obligated to make sure the changes are correctly communicated and implemented.

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