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Workers unaware of pension contribution increases

31st October 2017 By bespoketax

Workers unaware of pension contribution increases

The current total minimum contribution to a defined contribution workplace pension scheme under the automatic enrolment provisions is 2% of qualifying earnings, with a minimum of 1% coming from the employer. The remaining 1% would then ordinarily come from the worker. However, the employer may pay in more than the 1% minimum and, in that circumstance, the worker can then pay in less, or pay in nothing at all, as long as the employer puts in enough to meet the total minimum contribution. In most automatic enrolment schemes, contributions are based on qualifying earnings, which comprises total annual earnings (including bonuses, commission, overtime and statutory sick, maternity, paternity, adoption and shared parental pay, as well as basic salary) that lie between £5,876 and £45,000 before tax. The upper and lower limits are reviewed by the government each year and any increases take effect from 6 April.

The total minimum contribution will increase from 2% to 5% of qualifying earnings from 6 April 2018, of which at least 2% must be paid by the employer, and then it will increase again to 8% of qualifying earnings from 6 April 2019, of which at least 3% must be paid by the employer. The worker must then make up the difference. However, according to research conducted by NOW: Pensions, 62% of auto-enrolled workers are unaware of these minimum contribution increases, even though in most cases it will mean a reduction in their net salary as they may have to contribute up to 3% of their qualifying earnings from 6 April 2018 and up to 5% of their qualifying earnings from 6 April 2019. Employers should therefore ensure that they communicate these increases to their auto-enrolled workers sufficiently in advance to enable them to plan their finances, whilst still reinforcing the benefits to them of workplace pension saving. It is also employers’ responsibility to make sure that the increases are implemented.

There is, however, no need to take any further action if employers are already paying above the increased minimum amounts.

The employer’s minimum contribution The worker’s contribution* Total minimum contribution
Now 1% 1% 2%
From 6 April 2018 2% 3% 5%
From 6 April 2019 3% 5% 8%

*The worker’s contribution may vary depending on the type of tax relief applied by the automatic enrolment workplace pension scheme.

Filed Under: Employment Law

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