The work place pension regime requires the minimum pension contributions to increase over time. This is due to happen on set dates, and has been a key feature of automatic enrolment from the outset.
On 6 April 2018, contributions will increase from the current minimum of a total of 2% of qualifying earnings, to 5%. On 6 April 2019, total contributions reach a total minimum amount of 8%. If the employer has chosen to use certification (see below), there are corresponding incremental increases in the applicable contribution rates on these dates.
It is important to take these required increases into account when planning for budgets in the next few years.
An employer and staff member can choose to pay more than the minimum contributions if they wish.
All automatic enrolment pension schemes with contribution rates that would be below the minimum amount after the rate increases, must apply the higher rates in order to remain a qualifying scheme.
If a pension scheme does not increase its minimum contribution levels in line with the legal requirements, it will no longer be a qualifying scheme for existing members and cannot be used for automatic enrolment.
The table below demonstrates the phases of contribution increases, with the employer paying only their 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%|
Self-certification scheme increases
Employers may already have Defined Contribution (DC) / Defined Benefits (DB) workplace pension schemes.
Rather than needing to set up a new automatic enrolment scheme, these schemes can sometimes be used to put staff into under the employer’s automatic enrolment duties, as long as they meet certain conditions.
Employers can self-certify that their scheme meets the minimum requirements to qualify for automatic enrolment. In these cases, schemes are divided into three sets, each of which have their own qualifying conditions, with particular requirements under automatic enrolment for each of them.
If the scheme doesn’t meet the standards of one of these sets, then it cannot be used for automatic enrolment:
As from 6 April 2019, a total minimum contribution of at least 9% of pensionable pay (at least 4% of which must be the employer’s contribution).
As from 6 April 2019, a total minimum contribution of at least 8% of pensionable pay (at least 3% of which must be the employer’s contribution), provided that pensionable pay constitutes at least 85% of earnings (the ratio of pensionable pay to earnings can be calculated as an average at scheme level).
As from 6 April 2019, a total minimum contribution of at least 7% of earnings (at least 3% of which must be the employer’s contribution) provided that all earnings are pensionable.