Increase in auto enrolment contributions

Increase in auto enrolment contributions

Workplace pensions, a legal requirement that all companies must offer to staff, have been in force for all employers since October 2017. And the contributions employers have to make to their employee’s pension schemes will rise in April 2018.

Here’s the SMART Team’s guide on what you need to know.


Auto enrolment pensions – what are they?

For every employee that is enrolled onto one, your staff member and your company pays into their pension scheme every pay day. If you pay weekly, you’ll make up to 52 contributions a year and paying staff monthly means 12 contributions a year.

Auto enrolment, or workplace, pensions enjoy the same benefits as other types of pensions. To read up on what they are, please read this SMART Team article on pensions.


Auto enrolment pensions – signing up your staff

You must provide a workplace pension option for your eligible staff.

Eligible staff:

  • are between the age of 22 and the State Pension age
  • earn at least £10,000 a year
  • work in the UK (including those who occasionally travel abroad for work)

To set up your own workplace pension scheme, you should use the Pension Regulator’s online employer tool which will direct you on what you need to do and when.

You take deductions from your staff’s pay and pay it into your company pension scheme by the 22nd day of the following month – the same timeframe that you use to submit tax and both forms of National Insurance to HMRC.

The contributions both you and your staff member make will be on your staff member’s earnings between £5,876 and £45,000 (including their salary, commissions, overtime, and statutory benefits).


Auto enrolment pensions – new contribution rates from April 2018

Currently, both you and your employee must pay 1% of your employee’s earnings into their pension pot.

From April 2018, your company’s contribution rises to 2% and your employee’s contribution to 3%. From April 2019, your company will pay 3% and your employee 5%.

The short-term effect of this on your staff is that they will receive less take-home pay. If your staff are complaining about this, you can point them towards:

  • enrolling on the tax credit system,
  • asking for an increase in the tax credits they already receive (this may not happen until the next tax year),
  • enquiring about an income-related benefit
  • asking for an increase in any income-related benefit they receive

If they are paying back student loans, the amount your staff member will need to pay will reduce if they are contributing towards a pension scheme.

Salary sacrifice is available on workplace pensions under something called the SMART scheme (no relation).

Your employee can sacrifice part of their salary which your company then pays directly into their workplace pension account. Often as a result of salary sacrifice, your staff member will pay less in tax and National Insurance Employees’ Contributions and your company will pay less in National Insurance Employers’ Contributions.


Auto enrolment pensions – talk to the SMART Team

Your contributions are going up so yet another fixed cost you’re landed with. As if business wasn’t hard enough!

If you need any help with your workplace pension arrangements, call 01202 577 500 or email – it’d be great to hear from you.

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