Contribution Increases on the Horizon for UK Pensions
by activpayroll
Minimum contributions for workplace pension schemes in the UK will rise in 2019, employers should understand their responsibilities.
The UK’s auto-enrolment workplace pension schemes reached record levels of membership in 2018, with over 73% of employees opting to join and contribute. 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 in order to align the phasing with the UK tax year.
As an employer, you are responsible for making sure the phased increases take place: as the next deadline approaches, 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 workplace pensions, 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:
| Phase Date |
Employer Contribution (Minimum) |
Employee Contribution |
Total Contribution (Minimum) |
|---|---|---|---|
| 6 April 2018 - 5 April 2019 |
2% |
3% |
5% |
| 6 April 2019 onwards |
3% |
5% |
8% |
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 - 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 take into account 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. Practically 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.
Learn more about the UK payroll, tax, and pension landscape with activpayroll’s dedicated UK Global Insight Guide.