The amount you need to pay into employees’ pension pots is increasing. From April 2018, employers will have to contribute more than the current minimum of 1%. Fail to do it? Your pension scheme will be ineligible for auto enrolment, and could leave you liable to a hefty financial penalty.
Don’t be caught out. Read on as we discuss how to prepare for auto enrolment changes.
What is auto enrolment?
In 2012, the coalition government introduced a law which made it compulsory to offer a workplace pension scheme and automatically enrol all eligible workers. It came into effect for large employers in 2012, with later dates for medium and small companies up until 2018.
Any UK employee aged between 22 and the state pension age, earning more than £10,000 a year must be enrolled with some additional criteria for other ages and salaries. And employers must contribute a minimum of 1% of the employee’s wage, with a minimum total contribution of 2%. This generally means that employees must contribute the remaining 1%, though employers can cover that amount themselves.
As mentioned, however, that minimum contribution is about to change¦
Increasing the minimum contribution
From 6th April 2018, the minimum contribution for employers to auto enrolment pension schemes rises to 2%. At the same time, the minimum total contribution rises to 5%, meaning employees generally have to contribute 3% unless employers cover that too.
This isn’t the end of the increase though. The 2% minimum is just a stepping stone which lasts until 5th April 2019. After that, from 6th April 2019, there will be another increase to 3% for employers and 8% in total. Here’s a simple recap, based on employers contributing the minimum amount:
| Minimum employer contribution | Minimum total contribution | Minimum employee contribution | |
| Until 5th April 2018 | 1% | 2% | 1% |
| 6th April 2018 5th April 2019 | 2% | 5% | 3% |
| 6th April 2019 onwards | 3% | 8% | 5% |
Preparing for the changes
The first thing to do is check over the pension schemes for all your employees. You might already contribute a sufficient amount, which could suggest you don’t need to change anything. Remember, however, that it’s the employer’s responsibility to ensure the pension scheme qualifies for auto enrolment. That means it’s your responsibility to ensure the total minimum contribution is met, including employee contributions.
As for timing, the changes need to be in place ready for the start date 6th April 2018. Any contributions immediately after this date including on the day will need to meet the new minimum.
Need any help?
Auto enrolment is essential for businesses. But it can also be stressful and hugely time consuming. UWM can help.
We’re accounting experts, based in Leeds, with over 30 years of experience in the industry. Our comprehensive auto enrolment services take the stress out of the new pension scheme for you and your business, leaving you to concentrate on what you do best. Need more information? Feel free to get in touch with our team for a chat.
