Employer auto enrolment contribution set to double

Auto enrolment pension contributions are set to double for employers from April and companies will have to pay a minimum contribution of 2% from the 2018-19 tax year

All employers and employees currently paying the minimum contribution of 1% by the employer and employee alike will have to increase their pension budget to meet the rise in the level of auto enrolment funding.

From 6 April 2018 to 5 April 2019, the employer minimum contribution will increase to 2%, with staff contribution of 3%. This will rise again next year adding to pension costs across the board.

The Pension Regulator warned that ‘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’.

Richmal Price, payroll advice team leader at Peninsula Business Services, said: ‘Along with the rise to national minimum wage and statutory rates this April, it is essential that employers budget now for the next tax year the extra 1% in employer’s contributions they will have to pay by law.

‘If an employer fails to increase their auto-enrolment contributions to the minimum 2% needed (up from 1%), and employee’s up to 3% (from 1%), then The Pensions Regulator could fine them up to a maximum of £10,000 per day of non-compliance, and publicly name the company and the fine issued on their website.

‘Increases to auto-enrolment schemes this April are a legal requirement and not optional; you do not need an employee’s permission for these increases. All that is needed is to notify staff of the increases and which pay packet this will take effect from.’

Rising contributions

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, with the employer paying only their minimum, and the staff contribution shown in brackets (the difference between the total minimum and the employer minimum):

Date effective

Employer minimum contribution

Staff contribution

Total minimum contribution

Currently until 5 April 2018

1%

1%

2%

6 April 2018 to 5 April 2019

2%

3%

5%

6 April 2019 onwards

3%

5%

8%

All automatic enrolment pension schemes with contribution rates below the minimum amount after the rate increases, must apply the higher rates in order to remain a qualifying scheme.

Pension scheme trustees and providers, and payroll and software providers, must ensure their products support this legal requirement of automatic enrolment.

Report by Sara White

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