Another change to workplace pensions

Pensions auto-enrolment has been phased in slowly and as you’ll know every employer must ensure that their eligible staff join a workplace pension unless they opt out. But there’s one last important change before the task is complete, Joanne Gibson finds out.

Since early 2018 every employer has had to include eligible staff in a workplace pension scheme and pay into it. To be eligible for inclusion in your firm’s scheme your workers must be aged between 22 and state pension age and earn more than £192 per week.

Once auto-enrolled a minimum contribution must be paid but this is about to take a significant increase.

The Employers Responsibility
The last step of the auto-enrolment introductory process will take place in April 2019, when the minimum contribution rates reach their final level. Making sure the increase is correctly put into effect is the responsibility of you as an employer and The Pensions Regulator can fine you if you get it wrong.

How Much?
From 6 April 2019 the minimum total pension contribution rises from 5% to 8% of employees’ earnings, but not all earnings necessarily have to be subject to auto-enrolment. 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 auto-enrolment rate. If your policy doesn’t cover the contributions which apply from April 2019, you’ll need to change the policy so that it is compliant.

You should contact your pension company, financial advisor or scheme administrator about this without delay.

Keep Employees informed
It is best practice to notify your employees of the new auto-enrolment rates and in readiness for April, now is the time to do it.

Auto-enrolment Safeguards – Do’s and Don’ts
As an employer, you have auto-enrolment safeguarding duties. Not only are there things you must do to comply with auto-enrolment, there are things that you must not do. For example, staff may not be happy about the higher rates and may be entitled to reduce their contributions below the minimum rate rather than drop out of the pension scheme altogether. Auto-enrolment would cease to apply to them or you and consequently, subject to your pension policy/contract, you could reduce your contributions and save some money.

However, you must be careful that it doesn’t look as if you are actively encouraging your staff to drop out. The Pensions Regulator will see this as a breach of the safeguarding rules and can fine you heavily.

IN SUMMARY
From 6 April 2019, the minimum workplace pension contribution will increase from 5% to 8% of pay which is subject to auto-enrolment. You should check your scheme policy/contract to make sure that it complies with the new rates and contact your pension scheme administrator if it does not. As well as this, we recommend that you send a letter to your employees now telling them about the increase.

As ever, if you have any queries about auto-enrolment, please do not hesitate to contact us and we will be more than happy to help.