When automatic enrolment (AE) was introduced, the Government set the minimum total pension contributions to be paid into a workplace pension scheme. Over time, the minimum contributions were to increase to help ease employers and employees into automatic enrolment.
The AE minimum is currently 5% of qualifying earnings, of which, at least 2% must be paid by the employer. In April 2019, this rises to 8% of qualifying earnings of which, at least 3% must be paid by the employer.
A ‘Qualifying Earnings’ pension scheme uses the lowest cost definition of compliance with automatic enrolment. This is where the band of earnings, on which contributions are calculated for the 2019/20 tax year, is between £6,032 & £46,384 a year. This means, the first £6,032 of an employee’s earnings does not count for the purposes of auto enrolment. Banded earnings include bonuses, commission, overtime and any statutory pay, such as sick pay or maternity pay.
Some things to think about
Although the minimum contribution increases will start to affect you from April 2019, you will need to begin assessing your staff from the beginning of your pay period that includes this date.
If an employee is unable to, or does not want to pay the increased amounts, they will be able to stop contributing by opting out or leaving the qualifying scheme. This must be the employee’s choice and you cannot encourage or induce your employees to do so. Employers can (but will no longer have to) pay any contributions for that employee.
If you would like to continue paying contributions for your employee who wants to pay below the legal minimum contributions, this should be carefully documented. An employer can agree to pay below the legal minimum contributions for the employee. Even though the employee will continue to contribute to your workplace scheme, they will not be considered to be a member of a ‘qualifying scheme’.
How can we help:
- Help with the assessment
- Provide communications
- Manage the above to ensure compliance
If you have any questions about your business situation, please contact: