Workplace Pension Increase in Contributions

Key points

• These minimum contribution amounts are required to gradually increase at set times
• The total minimum contribution increased from 2% to 5% of qualifying earnings on 6 April 2018, and rises again on 6 April 2019 to a total minimum amount of 8%. If the employer has chosen to use certification, there are corresponding incremental increases in the applicable contribution rates on these dates
• The employer and staff member can choose to pay more than the minimum contributions if they wish
• All automatic enrolment pension schemes with contribution rates that would be below the minimum amount after the rate increases, must apply the higher rates in order to remain a qualifying scheme
• If a pension scheme does not increase its minimum contribution levels in line with the legal requirements, it will no longer be a qualifying scheme for existing members and cannot be used for automatic enrolment
• Pension scheme trustees and providers, and payroll and software providers, should ensure their products support this legal requirement of automatic enrolment

By law, on 6 April 2018, employers must have increased the amount of their minimum contributions into their staff’s automatic enrolment pension to at least 2% of qualifying earnings. Staff members will have to make up whatever shortfall remains of the new total minimum contribution up to 5%, including the employer’s contribution.

The minimum contribution levels will rise again on 6 April 2019, with the employer paying a minimum of 3% towards the pension, and the total minimum contribution reaching 8% – with the member of staff making up the rest.

If the employer pays the same as the minimum total contribution then the member of staff will not need to pay any contributions, unless the scheme rules require a contribution.

Both the employer and staff member can choose to contribute greater amounts to the pension if they wish.

If the employer contributes more than their required minimum amount – but less than the total minimum amount – then the staff member only needs to make up the shortfall between the total minimum and the employer contribution.

The table below demonstrates the phases of contribution increases, with the employer paying only their minimum, and the staff contribution shown in brackets (the difference between the total minimum and the employer minimum):