January 18, 2019

Auto-Enrolment: Contribution Increases From 6 April 2019 - Pensions Alert

Under auto-enrolment law, minimum pension contributions to both (group) personal pension schemes and trust-based defined contribution (DC) schemes increased from 6 April 2018 and they will increase again from 6 April 2019.

Employers that currently only make the minimum contributions will therefore need to be ready for these increases so that the correct employer and employee contributions are paid to the pension schemes from these dates. 

The increases based upon employees' "qualifying earnings" (between £6,032 and £46,350 in tax year 2018/19) will be as follows:

Period

Employer contribution (minimum)

Employee contribution (minimum)

Total contribution(minimum)

Currently until 5 April 2019 2% 3% 5%
6 April 2019 onwards 3% 5% 8%

If employers have decided to use another definition of earnings for auto-enrolment and have certified their schemes to that effect, the increases will be different to those that only use "qualifying earnings".  For example, for employers that calculate contributions based on gross earnings (not including bonus, overtime or commissions) the increases will be as follows:

Period

Employer contribution (minimum)

Employee contribution (minimum)

Total contribution (minimum)

Currently until 5 April 2019 3% 3% 6%
6 April 2019 onwards 4% 5% 9%

What should you do to prepare?

Employers should review contracts and pensions announcements to see if the increased contributions apply automatically to their workers and employees.  If not, then employers may need to consider changes to contracts to increase member contributions.  This increase can also trigger a minimum 60 day consultation before the change can be made although employers may have already consulted in relation to the April 2019 increase as part of a previous consultation for the April 2018 increase and so may not need to do it again.

Please contact Clyde & Co's pension team for more information.