25 Jan 2019
Contribution increases on the horizon for UK workplace Pensions
The UK’s auto-enrolment workplace pension schemes reached record levels of membership in 2018, with over 80% of employees for MHA Monahans clients alone opting to join and contribute. According to TPR (The Pension Regulator) a record of around 73% of employees in the UK had an active workplace pension scheme in 2018 up from 47% in 2012
TPR have issued fines for non-compliance, so the onus is on Employers to ensure they have initially enrolled, re-enrolled after 3 years, and completed their Declaration of Compliance every 3 years, to avoid being fined by the Regulator.
How much is the total sum TPR has issued in fines?
As of the end of September 2017, the total sum issued in fines for AE amounted to £27.6 million.
How many further fines do they anticipate in issuing?
Between April 2017 and September 2017, they forecasted to issue 18,387 fines in relation to AE. They actually issued 13,093. For the remaining six months of the financial year to March 2018, their forecast is to issue 31,178 further fines.
By law, automatic enrolment schemes require that minimum contribution levels from employers and employees increase over time: the previous contribution increase was in April 2018, and another is due on 6 April 2019 - part of a schedule known as ‘phasing’. These increases were originally scheduled for October 2017 and October 2018 - but were delayed aligning the phasing with the UK tax year.
As an employer, you are responsible for making sure the phased increases take place. With the next deadline approaching, it’s important you understand what the contribution increases are, and how to implement them.
Who contributes to a workplace pension?
Both employers and employees contribute to auto-enrolment pension schemes, but employers have an added obligation to ensure the correct minimum contributions are being made. Although there is a minimum contribution rate for employers, they may choose to contribute more - or even contribute the total minimum amount (leaving employees with a 0% contribution).
The current contribution rates, and those scheduled for April 2019, are as follows:
Employer Contribution (Minimum)
Total Contribution (Minimum)
6 April 2018
- 5 April 2019
6 April 2019 onwards
Are there exceptions?
The phased contribution increases obviously only apply to employers and employees who are part of an auto-enrolment pension scheme. Similarly, the phased increases do not apply to defined benefit pension schemes.
Some employers may have arrangements to make contributions depending on the different elements of pay their employees receive. If this is the case, your scheme will have guidelines which determine your phased increases, and there are resources online to help you work out what you need to contribute.
What do I need to pay in?
Depending on the type of scheme you have in place for your employees, salary contributions to workplace pensions may vary. Tax Relief (if it applies) may also affect the contribution amount. Contributions are based on a range of earnings, reviewed annually by the government. Currently, that range falls between £6,032 and £46,350 per year.
Pension contributions should consider not just an employee’s salary and wages, but any overtime, bonuses, and commission they have earned - along with sick pay, maternity pay, and statutory paternity pay.
How do I apply the increases?
As an employer, you’ll need to ensure phased increases to your workplace pension are implemented correctly. This process involves the following steps:
- Establishing which of the phased increases apply to you and your workforce.
- Consulting with your payroll department to review your calculation method - and how you will implement the increases.
- Consulting with your payroll provider (if you use one) to ensure they are ready for the increases.
- Reviewing your payroll software (if your provider has not already done so) to ensure it has the functionality to implement the increases.
- Checking that the increases will be implemented on HMRC basic payroll tools (if these are used as part of your pay process).
Certain factors may complicate phased contribution increases for your business, if the increases occur during the middle of a pay period, for example. Since the law requires the increases to be in effect from 6 April 2019, you may need to consult with your payroll provider to ensure your business remains in compliance.
When should I inform my employees?
While the April 2019 deadline is still on the horizon, you should tell your employees as early as possible about the phased increases to their pension contributions, since their pay will obviously be adjusted to accommodate the changes. Although there is no legal requirement to inform employees about the phased increases, doing so will ensure there is less friction and confusion when the changes are implemented.
Similarly, it’s important to work closely with your payroll team or payroll provider to ensure all employee queries are handled satisfactorily. The Pensions Regulator offers businesses a standard letter template to inform employees about phased pension contribution increases.
To find out more about phased contribution, click here
To discuss this or anything else, please contact Neil Manuel on 01793 818300 or send him an email