19th June 2018

Pension auto-enrolment in the coming years: what businesses need to know

The amounts paid by both employee and employer into your auto enrolment (AE) scheme increased on April 6, 2018 - But that’s not all. There are two other big changes on the horizon.

This increase is the first of two “phased” increases. The first jump is to a 5% minimum contribution. That’s 2% from the employer and 3% from the employee.

There will be a further increase in the tax year starting April 6 2019. In the 2019 tax year, these contributions will increase to a minimum of 3% employer and 5% employee giving a total minimum contribution of 8%.

“Generally, if you’re working with a payroll provider will be all over this and your pensions provider should have been all over this,” says Steve Webb, director of policy at Royal London.”But ultimately the legal responsibility is with the employer to make mandatory minimum contribution.”

If an error is made, it can be rectified. According to Webb, The Pensions Regulator (TPR) has been patient with mistakes and you can backdate payments. “TPR is happy if the eventual outcome is the same”.

The increase in contributions is the most immediate change to AE on the horizon, but there are more tweaks in the pipeline.

At present, your contribution is a percentage of your employee’s gross annual earnings that fall between £6,032 and £46,350. The first £6,032 isn’t included in the calculation. So if a person earns £30,000 their qualifying earnings would be £23,968.

So the mandatory contributions depend on this earning’s band and the age of employee. The age criteria at which employers must auto-enrol employees is 22. The Department of Work and Pensions’ Automatic-enrolment review late last year confirmed these will be changed.

Mandatory minimum contributions will be from the “first pound earned” and the age criteria will be lowered to 18. “These changes aren’t imminent,” says Webb. “But they are coming. Many companies do already contribute from the first pound of earnings, but if you’re a firm that’s doing the bare minimum, then you’ll notice the increase.”

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