Are you aware that auto enrolment contributions are about to go up?
From 6 April 2018, you will be required to increase the amount of your minimum contributions into your PA’s automatic enrolment pension from 1% to 2% of their ‘qualifying earnings’. Your minimum contributions will rise again from 2% to 3% from 6 April 2019.
The table below demonstrates the phases of contribution increases:
|Date effective||Employer minimum contribution||Staff contribution||Total minimum contribution|
|Currently until 5 April 2018||1%||1% (0.80% with tax relief)||2%|
|6 April 2018 to 5 April 2019||2%||3% (2.4% with tax relief)||5%|
|6 April 2019 onwards||3%||5% (4% with tax relief)||8%|
The minimum employer contribution of 2% will be set on earnings over £116 per week up to an upper limit of £892 per week (£503 and £3,863 a month, £6,032 and £46,350 a year).
Your PA Marcie earns £250 per week. Neither you nor Marcie pay pension contributions on the first £116 of pay, thus you will each pay contributions based on £134 (£250 less £116) each week. You will put £2.68 (2% of £134) into her pension scheme each week. Marcie will put in £4.02 (3% of £134) although, depending on which pension scheme you use, you may only need to deduct £3.21 from her wages – the rest will be paid into her pension pot by the Government as tax relief.
You have the ability to pay more than 2% if you wish. If you contribute the total minimum contribution (5% from 6 April 2018) then your PA will have to contribute nothing. If you contribute more than the required minimum amount – but less than the total minimum amount – then your PA only needs to make up the shortfall between the total minimum and the employer contribution.
How to implement the increases
If you use payroll software that helps you with auto enrolment duties, then the increases should be automatically built into their systems. It is worth speaking to your payroll software provider to make sure this is the case, so that you remain compliant.
If you use Basic PAYE Tools, which doesn’t handle auto enrolment then you will have to factor in the new percentages into your manual calculations of contribution amounts. The Pensions Regulator (TPR) have a basic tool to help with these calculations. It is currently being updated for the 6 April 2018 changes and we will post a link to it as soon as it becomes available.
You should be aware that the 6 April 2018 increase may occur part way through your PA’s pay period. For example, your PA may have a pay period of 1 to 30 April, with the increase effective from 6 April.
This means that a pro-rated pension contribution deduction may be required for a pay period which includes 6 April 2018. If this is the case, the contribution for the pay reference period up to 6 April would be calculated based on the old rates, and from 6 April up to the end of the pay reference period being based on the new rates.
However, TPR have advised us that many pension providers will put in place administrative easements, for example the new rates could be applied to complete pay periods with a pay date on or after 6th April. If you are unsure, check any information your pension provider has sent about the increase or, if there isn’t any information, check with the pension scheme provider.
What if I can’t afford the increase?
As part of the process of implementing auto enrolment for your PA you should have read that contribution levels will increase over time. You have hopefully had some time to plan for and budget for these increases.
Saying that, if you receive money from the government to pay your PA (for example through direct payments from your Local Authority) then you should speak to the team who deal with your payments to see if they can be increased to cover any additional costs.
It is your legal duty to make sure the right minimum contributions are being paid from 6 April 2018. If you don’t do this it could result in fines.
What do I need to tell my PA?
Unless you pay the total minimum contribution amount (i.e. and pay their contributions for them), your PA will probably also need to pay more into their pension come 6 April 2018. As such, you should let your PA know about the increases so that they can prepare for this and to help minimise queries.
The TPR have an example letter template you can use:
Letter template for letting your staff know about the increase in contributions (DOC, 31.7kb, 1 page)
Depending on the pension scheme provider you use, they may also write to your staff or have letters that you can use.
If your PA does not wish to pay the increased contributions, they may decide to opt out of pension saving. They will be able to cease their active membership of the pension scheme but usually will not be able to claim any contributions back (they will subsist in the scheme until their retirement).
A worker who has opted out does not need to be assessed again until your next re-enrolment date (occurs approximately every three years).
You can find detailed guidance for employers on processing opt outs on The Pensions Regulator's website.
Alternatively, the pension scheme may allow them to remain at the lower contribution rate, or to reduce their contributions again after the increase. This will mean they continue to be a member of the scheme, but as contributions are below the minimum level required by law, the scheme will not be qualifying for auto enrolment purposes. This will mean that, at your cyclical automatic re-enrolment date, such a worker may need to be automatically re-enrolled if they meet the eligible jobholder criteria (age and earnings criteria) on that date.
More information of the minimum contribution increases can be found on The Pensions Regulator website.