When the legislation was introduced which governs workplace pensions and auto-enrolment, the Government recognised that it would create new or additional costs during an already difficult period of economic uncertainty. In order to help both employers and staff manage the costs, they introduced the phasing in of contributions between an employer’s staging date and 6 April 2019.
Pension contributions can be based on Qualifying Earnings, Basic Pay or Total Pay. Qualifying Earnings represent the minimum contribution requirements prescribed under the auto-enrolment legislation. Instead of considering an individual’s full earnings as pensionable, it only considers annual earnings between £6,032 and £46,350 for the 2018/19 tax year. This annual threshold is pro-rated in line with the frequency that an individual is paid.
Currently employers are required to contribute at least 1% of earnings between these bands and the total contribution must be at least 2%. Staff are required to make up any shortfall between the employer contribution and the minimum total requirement.
These rates will increase as follows:
Similar increases will apply if you are basing pension contributions on Basic or Total Pay.
What happens next?
If Buzzacott are responsible for running your payroll and administering auto-enrolment, adjustments will be made to our current processes so you will not need to take any further action. If this process is being managed by a third party, they should be making or assisting you to implement these changes. However, you should liaise with them directly to clarify the timings and practicalities of such increases.
How can Buzzacott Financial Planning help?
Buzzacott Financial Planning can help you communicate these contribution changes to your staff by drafting bespoke compliant communications for you. We can also provide a presentation to staff on the pension offering along with any legislative changes which typically encourages more positive engagement with the benefits that you are offering.
The increase in staff contributions, potentially a 2% rise from April 2018 and a further 2% rise from April 2019, may represent a significant additional cost to staff which some may feel is unaffordable. Should this be the case, there are various options available to you and we would be happy to provide more details on these options.
If the contributions that you and your staff pay already exceed the new minimum levels, no action will be required. However, you may still wish to send a communication to staff to provide reassurance that they are unaffected by the contribution changes as the Pension Regulator will be publicising these changes.
If you want to know more about any of the services that the team offer, please contact your usual Buzzacott contact or, complete the form below to leave an enquiry.