By law, all auto enrolment workplace pension schemes must reach a minimum contribution level.
The first increases must be in place by 6 April 2018, with a further increase planned so all schemes are making the minimum contributions by April 2019.
Many employers have chosen the statutory phasing timeline which means the first phase of increases is effective from 6 April 2018, with contribution increases as shown in the table below.
|Date||7% of all earnings*||8% of pensionable salary, provided 85% of total payroll* is pensionable||9% of pensionable salary||8% of qualifying earnings|
|Total must be at least||Employer must contribute||Total must be at least||Employer must contribute||Total must be at least||Employer must contribute||Total must be at least||Employer must contribute|
|Staging date to 5 Apr 2018||2%||1%||2%||1%||3%||2%||2%||1%|
|6 Apr 2018 to 5 Apr 2019||5%||2%||5%||2%||6%||3%||5%||2%|
|6 Apr 2019 onwards||7%||3%||8%||3%||9%||4%||8%||3%|
* Earnings must include everything that’s included in the definition of qualifying earnings.
Other employers have chosen a customised approach, following a different timeline and in some cases, different contribution increases too.
We’ve recently written to employers with schemes due to make a phasing increase to contributions within the next few months – either statutory or customised.
You’ll need to make the appropriate changes to your payroll system to ensure the new minimum contributions are in place to meet the effective date which applies to your scheme.
If your scheme is an auto enrolment scheme, we’ll provide the information you need to help you with this through your employer dashboard.
If your scheme is a qualifying scheme, you’ll need to update your payroll with the required contribution changes in the usual way.
If some or all of your members have opted for salary exchange to fund contributions, you’ll need to ensure the change to contribution levels is covered in the salary exchange agreements you have with these members.
We’ll write to your scheme members to let them know this increase is coming. We’ll also highlight the benefits of saving for their retirement through your pension scheme. Here are examples of the letters we’ll send.
If you'd like hard copy posters or postcards please email us at Member.Communications@royallondon.com. Just let us know how many of each you need and confirm the address you’d like us to send them to.
To make sure all your scheme members know what’s happening, we’ll also write to those who are already above the new minimum contributions, confirming there’ll be no change for them.
The increase in contributions is a great opportunity for your members to save more, helping to build up their pension savings and giving them the chance of a better retirement. However investment returns are never guaranteed. So while your members' savings could grow, their value can also go down. This means they could get back less than what they put into their plan.
There may be some circumstances where a member may not want to pay the increased contribution.
The Pensions Regulator rules state very clearly that employers must not induce members to pay contributions below the minimum. However, you can agree to allow a member to pay contributions below the scheme default minimum.
If you agree these arrangements with a member, there are a few things you and the member need to be aware of.
|Plan number||Title||First name||Last name||Payroll ref no||NI No.||Date of birth||Agreed member contribution||Employer contribution||Include in future phasing (Y/N)|
We've prepared template wording which you can personalise and provide to any members in this position.
It’s important that your employees make their own decision about the level of contribution they want to make. You can find out more in The Pensions Regulator detailed guidance for employers.