Workplace pension contribution increases from 6 April 2019

The minimum contribution an employer and employee pay into an automatic enrolment workplace pension scheme will increase from 6 April 2019.

Who does this apply to?
All employers with employees in an automatic enrolment pension scheme. This means that all employers must ensure the minimum amounts are being paid into their employee’s pension schemes. This applies whether you set up a pension scheme for automatic enrolment or you decided to use an existing scheme.

No further action is required if there are no employees in the pension scheme or contributions are already being made above the increased minimum amounts.

The contribution increases do not apply to defined benefit schemes.

Key points for consideration.
By law the total minimum amount of pension contribution set by The Pensions Regulator must be paid into the pension scheme. The employer must make the minimum employer contribution towards this amount with the employee making up the difference. If you decide to cover the total minimum contribution required, your employees do not need to pay anything.

The Increase in employer costs from April 2019 should be included in budgeting and projection forecasts.

How will the increases affect my pension scheme?
Employers with a Qualifying Earnings Scheme will have increased contributions as follows:

Date Employer minimum contribution Employee contribution Total minimum contribution
New rate: 6 April 2019 onwards 3% 5% 8%
Current rate: 6 April 2018 to 5 April 2019 2% 3% 5%

Contributions are made from a specific range of earnings. For the 2019/20 period, the range is between £6,136 and £50,000. Qualifying earnings include:

  • Salary
  • Wages
  • Commission
  • Bonuses
  • Overtime
  • Statutory sick pay
  • Statutory maternity pay
  • Ordinary or additional statutory paternity pay
  • Statutory adoption pay

If you agreed with the scheme provider to calculate contributions using a different method than Qualifying Earnings, you will fall into one of the following categories known as sets. Minimum contribution rates vary depending on how the pension scheme was set up.

Set 1: contributions calculated on basic pay
You don’t include bonus, overtime, commission or certain employee allowances (such as shift pay or relocation allowance) in the calculation.

Date Employer minimum contribution Employee contribution Total minimum contribution
New rate: 6 April 2019 onwards 4% 5% 9%
Current rate: 6 April 2018 to 5 April 2019 3% 3% 6%

Set 2: employees pensionable pay must be at or above 85% of their total earnings
Monitoring monthly changes such as non-pensionable bonuses and overtime is required to ensure employees pensionable pay is at or above 85% of their total earnings.

Date Employer minimum contribution Employee contribution Total minimum contribution
New rate: 6 April 2019 onwards 3% 5% 8%
Current rate: 6 April 2018 to 5 April 2019 2% 3% 5%

Set 3: you calculate contributions based on all elements of employee earnings.

Date Employer minimum contribution Employee contribution Total minimum contribution
New rate: 6 April 2019 onwards 3% 4% 7%
Current rate: 6 April 2018 to 5 April 2019 2% 3% 5%

Some action points for employers

  • You should determine which rate of minimum contributions apply to your scheme.
  • You should communicate the changes in rates to employees which will allow them to budget ahead.
  • It’s also worth considering that the increase in contribution levels may prompt more employees choosing to opt-out of schemes. The overall increase in contributions for employees who joined prior to April 2017 could total 4%. This is a rise from 1% to a maximum of 5% depending on how the scheme was set up. For example, a 1% contribution in 2017 of £20 will now be a 5% contribution of £100, a difference of £80.

Non-contributory pension schemes
In such schemes, if the total contributions are below the minimum requirements for auto-enrolment the shortfall needs to be made up. Employers must decide if they will increase contributions to meet the minimum requirements at a cost to the employer or look at introducing employee contributions.

Useful resources
The Pensions Regulator provides templates for communicating contribution increases with your employees. You can download and tailor the letters as necessary. Please follow the link below:

https://www.thepensionsregulator.gov.uk/en/document-library/automatic-enrolment-detailed-guidance/letter-templates-translations

If you have any further queries regarding increases to pension contributions please feel free to contact a member of the Chiene + Tait Payroll Team at payroll@chiene.co.uk or call 0131 558 5800.