Work Place Pensions – Automatic Enrolment
Under the Pensions Act 2008, every employer in the UK must put certain staff into a pension scheme and contribute towards it. This is called ‘automatic enrolment’. If you employ at least one person you are an employer and you have certain legal duties.
Employers need to pay the correct contributions on time to your staff pension scheme. If you don’t, you risk being fined by the regulator.
Under automatic enrolment, minimum pension contributions are required to increase over time. This happens on set dates, and is a key feature of automatic enrolment
Key points:
- These minimum contribution amounts are required to gradually increase at set times.
- Contribution increases from the current minimum of a total contribution of 2% of qualifying earnings take place on 6 April 2018, rising to 5%, and on 6 April 2019, reaching a total minimum amount of 8%. If the employer has chosen to use certification, there are corresponding incremental increases in the applicable contribution rates on these dates.
- The employer and staff member can choose to pay more than the minimum contributions if they wish.
- All automatic enrolment pension schemes with contribution rates that would be below the minimum amount after the rate increases, must apply the higher rates in order to remain a qualifying scheme.
- If a pension scheme does not increase its minimum contribution levels in line with the legal requirements, it will no longer be a qualifying scheme for existing members and cannot be used for automatic enrolment.
- Pension scheme trustees and providers, and payroll and software providers, should ensure their products support this legal requirement of automatic enrolment.
How minimum contributions increase in stages
Beginning on 6 April 2018, 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:
Source: The Pensions Regulator
If you need help with your payroll or automatic enrolment duties the please contact us on 01524 784324 or email info@sjwaccountants.co.uk or complete our on-line form