UK Automatic Enrolment: Increases to Minimum Pension Contributions on 6th April 2019 - Things to Consider!

All existing businesses in the UK with one or more employees must have a workplace pension and auto-enrol their employees into it (known as Automatic Enrolment).

The minimum pension contributions under Automatic Enrolment increased in April 2018 and will increase again in April 2019. All businesses should have received a letter from The Pensions Regulator about this.

Automatic Enrolment rules revolve around pension contributions based on ‘Qualifying Earnings’* which is a band of earnings (currently linked to ‘lower’ and ‘upper’ earning thresholds) and including all aspects of pay (ie bonus, overtime etc).

The table below shows the minimum contributions that must be paid under the ‘Qualifying Earnings’* basis and the dates by which they must come into effect. Employers can choose to pay some or all of employees’ element of the minimum contribution, e.g. employers could pay 8% of qualifying earnings from April 2019 with no contribution required from employees.

Employers and/or employees can choose to pay more than the statutory minimum contribution.

*Qualifying Earnings for the 2018/19 tax year are earnings between £6,032 and £46,350. Qualifying Earnings for the 2019/2020 tax year are earnings between £6,136 and £50,000

Most pension schemes do not use Qualifying Earnings to calculate pension contributions and instead use a different definition of pensionable pay and base contributions from the first £1 of earnings. This makes communication and understanding to members and calculations of contributions easier.

There are three ‘Alternative Contribution’ bases. The tables below show the minimum contributions employers and employees must pay under each basis and the dates when they must increase.

What action should employers take?

It is important that you understand the type of pension scheme you have and the minimum contribution level that applies to you.

• Check if your current levels of contributions meet the April 2019 minimums. If YES;    If you are using a pensionable pay definition that is not “Qualifying Earnings” you will need to certify or recertify your scheme If NO; How will the minimum contributions be met? How will increases be communicated to employees?
• Are your payroll aware of the changes and able to make them?
• If you are using a pensionable pay definition that is not “Qualifying Earnings” you will need to certify or recertify your scheme

Our top tips

1.      Consider multiple communication methods to get the message across to your employees – posters, emails, intranet, payslip communications, short videos – most pension providers have already prepared literature you can use

2.      Salary Sacrifice is only legal providing that the salary is not below the minimum wage – if you use Salary Sacrifice, you will need to assess all employees included on the sacrifice to make sure that the increase does not take your employee’s salary below the minimum wage

3.      If an employee asks to pay contributions that are below the Automatic Enrolment minimum, this is classed as ceasing active membership for the purposes of Automatic Enrolment – for compliance, you will need to record those employees who reduce their contributions in the same way as people who have opted out or ceased contributions altogether and include them in your later re-enrolment exercises

4.      If your automatic re-enrolment date is on 1 April 2019, you will need to go through re-enrolment in the usual way and apply the increased minimum contributions levels from the first contribution you calculate after 6 April 2019

5.      Don’t assume the changes will happen automatically. Regardless of whether you outsource your automatic enrolment functions, it remains your responsibility as the employer to check that the increase has been correctly applied to your workplace pension scheme. This includes liaising with your payroll to make sure the correct levels of contributions are deducted and paid and completing any required updated forms for your pension provider (eg direct debit / schedules) 

6.      Check with your payroll provider before 6 April 2019 to ensure that everything is in place to manage the contribution changes. The new rates will become law on 6 April 2019, but it is unlikely that this date will suit most employers so you may need to make the changes earlier

7.      Consider High Earners who may be at risk of breaching allowances due to the increase in contributions – your advisor will be able to assist you with this

8.      Remember that new employees are impacted too – check that any pension material issued to new employees reflects the updated contribution rates

9.      Use this increase as an opportunity to help employees understand their pension and value the money you are paying into it for them. Use your communications to boost awareness.  Your employees should be thinking about whether the contributions being made are enough for the retirement outcome they want – do your employees understand the options available at retirement? Have you considered offering your employees access to Financial Education?

10.  Reviewing your contribution levels and Automatic Enrolment strategy should not be a one-off event. You should regularly monitor your scheme to check Compliance and value for money and to ensure that you have a strategy for getting the best outcomes for your members

Important Information

• Remember - it is illegal to encourage employees to opt out or cease membership
• You can’t postpone the increases
• Increases to the minimum contributions are a Statutory requirement. If you do not make the changes or fail to pay across the correct contributions in the required timescale, your pension provider can notify both The Pensions Regulator and your affected employees. This could result in The Pensions Regulator taking regulatory action which could include a fine

Further Guidance

For more information about the planned changes, visit The Pensions Regulator’s website

If you would like to talk to us about your pension scheme, please contact

Emma Gleaves on 07493 405963

Eppione are authorised and regulated by the UK Financial Conduct Authority. We are able to provide advice and guidance on workplace pension schemes including Compliance and Value For Money Reviews.