Changes are coming, including to minimum contributions.
There are several changes on the horizon, with the most significant being the change in minimum contributions as well as the authentication process for the declaration of compliance.
This will impact on the 1,032,567 whose employers have automatically enrolled jobholders and the 9,285,000 jobholders enrolled into automatic enrolment pension schemes.
By law, on 6 April 2018, employers are required to increase the amount of their minimum contributions into their staff's automatic enrolment pension to at least 2% of qualifying earnings.
What do employers need to be aware of?
Employers need to start thinking about the increases early, and plan ahead for when they come into effect from 6 April 2018 and also later increases from 6 April 2019.
Make sure employees are aware
Staff should know what is happening. When a member of staff was first automatically enrolled, the letter they received from the employer will have set out that contribution levels will increase over time.
There are no additional duties under automatic enrolment for your clients to advise staff about the increases, but most employers will find this useful in order to help their employees and minimise queries or misunderstandings. For instance:
employees may have forgotten about the increases and not may not be able to afford the increase
workers might think there is no other option but to leave the scheme if the increases cause them hardship.
The Pensions Regulator has provided a suggested letter for employers to use in letting their staff know about the increases. This should be amended to the employers’ circumstances.
Check your calculations
An obvious point to mention is to check your payroll systems. The Regulator says:
we recommend that your client checks with their payroll provider to make sure that they're ready to calculate and deduct the increased contributions when they rise from 6 April 2018 and 6 April 2019 – if they're not prepared for the increases, the right amount may not be paid across to the scheme on time. It's very important that the workplace pension schemes and payroll software can support the contribution increases, otherwise the right contributions might not be deducted at the right time, and the schemes used by your clients may no longer be qualifying schemes for automatic enrolment.
Check the terms of the scheme
remember that the employer can choose to pay the full amount of the total minimum contribution. This may mean staff do not have to pay in at all, unless the scheme's rules say that they have to make contributions
your client and their staff can choose to pay more than the minimum contributions if they wish.
Check you are receiving the correct information
The Pensions Regulator (TPR) sends out letters to employers to support them with their automatic enrolment duties. Letters sent regarding the minimum contribution increases can be found below.
The table below shows the minimum contributions that employers who set up a defined contribution scheme for automatic enrolment must pay, and the date when they must increase. This is calculated based on earnings between £5,876 to £45,000 per year (£490 to £3,750 per month, or £113 to £866 per week), and including certain elements of pay.
Employer minimum contribution
Total minimum contribution
Currently until 5 April 2018
6 April 2018 to 5 April 2019
6 April 2019 onwards
If changes to the scheme are needed as a result of the increase in the minimum contributions required by law, then the scheme's trustees and providers will let your clients know whether existing scheme members need to be consulted about the change to their contribution rates.
It is advisable to check to make sure that the payroll has been set up to reflect the scheme – whether it's a ‘relief at source’ scheme or a ‘net pay arrangement’.
Declaration of compliance
Towards the end of March The Pensions Regulator will no longer be using Government Gateway as the authentication process for the declaration of compliance portal. Instead, employers and advisers will login to the portal via TPR’s own system. The key changes are:
employers will require a passcode, which is obtained by creating an account from the main landing page
a ‘guest account’ has been introduced to help employers get started on their declaration without the need to set up a passcode
helpful warning/reminder messages will appear in red if an employer is close to their duties start date, in order to prompt employers to complete their declaration of compliance
those who are completing declarations of compliance for multiple employers will be able to view the progress for each on a ‘multi-employer dashboard’. This includes the option to search for employers and sort by declaration deadline. An example of how this page will look is also attached.