There will be an increase in the minimum contribution staff and employers pay into workplace pensions and will come into effect from April 2019.
It is the responsibility of employers who have staff that are taking part in a pension scheme to ensure that the minimum payments are being made, in accordance with the Pensions Act 2008, and that employees are informed of the changes in advance.
What Are the Contribution Increases?
From April 2019:
- The employer contribution will rise from 2% to 3%.
- The employees contribution will rise from 3% to 5%.
- The overall increase will be from 5% to 8%.
- Pension earnings will still be made on your salary between £6,032 and £46,350.
This is the minimum amount that needs to be paid into the scheme for those taking part. If your company is contributing above this amount already, you don’t need to change things and can continue processing payments in the normal way. Employers can, of course, decide to cover the total minimum contribution of 8% without their staff having anything deducted from their wages.
Changes may depend on the type of scheme that you have signed up for but most of these will have a minimum contribution of 8% or above.
When calculating what your minimum contribution is, you not only have to take in account basic salary but other factors such as commission, overtime and bonuses as well as sick pay and maternity pay. Some pensions schemes could well base their calculations on different elements of pay and it is worth checking with your provider what these are and ensure that you are meeting the new increases and statutory requirements.
Setting Up The Increased Payments
You should first check with your provider what increases apply to your scheme and who in your business is going to be affected. You could have staff who joined a scheme which you need to pay into, in which case you also have to match these increases. There may be schemes that you don’t have to pay into, however.
Whether you use a payroll provider, pay your staff yourself or use software to administer your payroll, this needs to be ready to implement the changes on April 2019. The earlier you plan, therefore, the better.
It’s also important to make sure that all affected staff are informed of the changes well before the April 2019 increase. There is a standardised letter available on the government pension scheme page.
Schemes Where the Increase Does Not Apply
If your company is using a defined benefit scheme then you do not have to apply the increase. These are schemes used by large companies or the public sector. Some businesses might use a combination of a defined benefit scheme and minimum contributions, in which case the increases will need to be applied to the latter.
You do not have to make any increases if, of course, you don’t have anyone on a pension scheme for automatic enrolment or currently pay above the new contribution rate.
What Happens if You Fail to Implement the Increases?
Employers have a legal duty to ensure that this increase is implemented by April 2019 and failure to do so can lead to a substantial fine.
As a result of the Autumn budget 2018, there are also a number of employment tax changes to keep on top of, and the switch to Digital VAT returns, HMRC’s “Making Tax Digital” scheme, is due to begin in April this year as well.