Under the Pensions Act 2008, every employer in the UK must put certain staff into a pension scheme and contribute towards it. This is known as ‘automatic enrolment’. Currently, the minimum employer contribution is 1% and the minimum total contribution is 2%, which means the employee must also contribute a minimum of 1%. From April 2018 this will change.
From 6 April 2018, the minimum total contribution will be 5%, with employers being required to contribute a minimum of 2%. This will mean that employees will be expected to contribute a minimum of 3%.
The above increases apply to most schemes who use qualifying earnings as a basis for contributions. If you have a certified pension scheme (an existing pension scheme that was certified to allow auto-enrolment), then the increases may be slightly different depending on the criteria used.
Contributions calculated on gross earnings (not including bonus, overtime, commission, or certain allowances) will rise to 6% on 6 April, with a minimum 3% contribution by the employer.
Contributions calculated on gross earnings based on at least 85% of total earnings will rise to 5% on 6 April, with a minimum 2% contribution by the employer.
Contributions calculated on all earnings will rise to 5% on 6 April, with a minimum 2% contribution by the employer.
As an employer, you need to ensure you communicate the forthcoming changes to your relevant employees. You also need to ensure either your payroll team, or payroll provider, are aware of the changes and what your contribution will be from 6 April 2018 (2% or more). They will also need to ensure the correct deductions are made from your employees pay and that your chosen pension scheme supports the increased contributions.