Auto Enrolment – Change in contribution rates from April 2019

The minimum contributions that you and your staff pay into your automatic enrolment workplace pension scheme are increasing. This is also sometimes known as phasing.

It is your responsibility to make sure these increases are implemented.

What do you need to do next?
You’ll need to ensure you collect and pay the correct contribution amounts in line with the new rates. You can find details of the rates here

You’ll also need to inform your workers of this change. Guidance from The Pensions Regulator (TPR) suggests:
· If you use a payroll provider or payroll bureau you should speak to them to check everything is in place to process the increases
· If you pay your staff yourself using payroll software, you must make sure it is set up to process the increases
· If you are unsure what to do speak to the software provider
· If you use your own process to pay your staff, you will need to ensure the increases are implemented
· If you use HMRC basic payroll tools you will need to put in place a process to ensure the increases are implemented.

Make sure you allow plenty of time to put any changes to processes in place, so you’re ready for the change.

TPR guidance states that if your pay day is in the pay period that crosses 6 April 2019 but falls before 6 April 2019 then the increase can be deferred until the next pay date. If the pay day falls on or after 6 April 2019 then the increase applies from the pay period that crosses 6 April 2019.If you are unsure what rates to use you can find more information here

When do the increases take effect?

There are two phases to the increases in minimum contributions. The first increase took place on 6 April 2018 and the second must be in place from 6 April 2019.

Who does this apply to?

All employers with staff in a pension scheme for automatic enrolment must take action to make sure at least the minimum amounts are being paid into their pension scheme. This applies to you whether you set up a pension scheme for automatic enrolment or you decided to use an existing scheme.

However, you don’t need to take any further action if you don’t have any staff in a pension scheme for automatic enrolment or you are already paying above the increased minimum amounts.

Additionally, if you’re using a defined benefits pension scheme then the increases do not apply.

What are the increases?

The amount you and your staff pay into your pension scheme will vary depending on the type of scheme you have chosen and the rules of that scheme. You can find this information in the scheme documents sent to you when you set up the pension scheme or you can speak to your pension provider.

Most employers use pension schemes that from April 2018 require a total minimum of 5% contribution to be paid. The calculation for this type of scheme is based on a specific range of earnings. For the 2018/19 tax year this range is between £6,032 and £46,350 a year (£503 and £3,863 a month, or £116 and £892 a week).

When you are calculating contributions for this type of scheme you include the following:

  • salary
  • wages
  • commission
  • bonuses
  • overtime
  • statutory sick pay
  • statutory maternity pay
  • ordinary or additional statutory paternity pay
  • statutory adoption pay

By law a total minimum amount of contributions must be paid into the scheme. You, the employer, must make a minimum contribution towards this amount and your staff member must make up the difference. If you decide to cover the total minimum contribution required, your staff won’t need to pay anything.

This table shows the minimum contributions you must pay and the date when they must increase:

Date Employer minimum contribution Staff contribution Total minimum contribution
Previous rates until 5 April 2018 1% 1% 2%
Current rates from 6 April 2018 to 5 April 2019 2% 3% 5%
6 April 2019 onwards 3% 5% 8%

The staff contribution rate may vary depending on the type of tax relief applied by your scheme. If you are unsure check your scheme documents.

What if I am using a pension scheme which requires different minimum contributions?

You may have agreed with your pension scheme to base minimum contributions on different elements of staff pay. If this is the case you will need to apply different increases.

Find out what increases apply to you if you are calculating contributions using different elements of staff pay.

Check your scheme documents to find out what elements of staff pay your scheme uses. If you are still unsure speak to your scheme provider.