Pensions auto-enrolment was phased in slowly, but now every employer must join their eligible staff in a workplace pension unless they opt out. But there’s one last important change before the task is complete. What is it?
It’s been a long haul but since early 2018 every employer has had to include eligible staff in a workplace pension scheme and pay into it. That’s the basics of auto-enrolment (AE). To be eligible for inclusion in your firm’s scheme your workers must be between 22 and state pension age and earn more than £192 per week. Once auto-enrolled a minimum contribution must be paid and this is about to take a significant hike.
The last step of the AE bedding-in process occurs in April 2019, when the minimum contribution rates reach their final level. Making sure the increase is correctly put into effect is your responsibility as an employer and The Pensions Regulator (TPR) can fine you if you get it wrong.
From 6 April 2019 the minimum total pension contribution rises from 5% to 8% of employees’ earnings – not all earnings necessarily have to be subject to AE (see The next step ). Of this you must pay 3% (up from 2%) and your workers must pay the difference between your contributions and the 8% (or higher figure) or tell you in writing that they don’t want to be included in your pension scheme.
Higher contributions. The actual rate of contributions is decided by your workplace pension policy/contract. This may require you or your employees to pay more than the minimum AE rate. If your policy doesn’t cover the contributions which apply from April 2019, you’ll need to change the policy so that it’s compliant.
Tip. Contact your pension company, financial advisor or scheme administrator about this without delay.
Keeping workers informed
It’s best practice to notify your workers of the new AE rates and now’s the time to do it.
Tip. TPR produces a template letter you can use to send to staff to tell them the contributions are going up. You can adapt it to meet your needs. TPR also provides a helpful flow chart of what steps you need to take in readiness for April (see The next step ).
Dos and don’ts – AE safeguards
As an employer, you have AE safeguarding duties. Not only are there things you must do to comply with AE, there are things you mustn’t. For example, staff may not be happy about the higher AE rates and may be entitled to reduce their contributions below the minimum AE rate rather than drop out of the pension scheme altogether. AE would cease to apply to them or you. Consequently, subject to your pension policy/contract you could reduce your contributions and save some cash.
However, you must be careful that it doesn’t look as if you’re encouraging your staff to drop out. TPR will see this as a breach of the safeguarding rules and hit you with a stiff fine.