Auto Enrolment Into Pension Schemes
Auto-enrolment - The next stage
All employers are now required to offer employees access to a qualifying pension scheme
The obligations to satisfy the legal requirements for auto-enrolment apply now to almost all employers , with the last affected being in early 2018. Larger employees who auto-enrolled first will have been going through the process of re-enrolment whereby three years after auto-enrolment employers are obliged to re-enrol any employees who have opted-out .
Auto –enrolment is required for all employees age between 22 and state pension age who have earnings in excess of £10,000. Employers are required to provide access to a scheme into which are paid minimum contributions at a specified % of qualifying earnings - defined as gross pay between £5,876 – £45,000 (in 2017/8).
Most employers choose to meet their auto-enrolment obligation by enrolling employees in a defined contribution (DC ) scheme
The minimum %’s of qualifying earnings to a qualifying DC scheme has been 2%, of which at least 1% must be an employer contribution (which would mean the employee was required to pay 1%) . Following the end of the staged auto-enrolment process, higher minimum levels of contributions are being phased in.
Minimum contribution %’s
Total Minimum employer
Prior to 5 April 2018 2% 1%
6 April 2018 – 5 April 2019 5% 2%
From 6 April 2019 8% 3%
What this means is that if the employer does pay the Minimum % then the contribution required from the employee will rise from 1% currently to 3% in April 2018 and 5% in April 2019.
If an employer has a DC scheme with pensionable earnings defined differently to qualifying earnings then the % rates can differ e.g. if all earnings are pensionable then the total requirement from April 2019 could be 7% and the employer minimum 3%, or if only basic pay is pensionable then the %’s would be 9% of which 4% would have to be paid by the employer (and for 2018/9 a total contribution of 6% with an employer minimum of 3%)
Employers can satisfy the auto-enrolment requirement by offering a defined benefit (DB)scheme which meets minimum prescribed requirements.
(Advice on a strategy to deal with increasing contributions can be found under the Defined Contribution tag on the website –‘Time to review your DC Scheme’)