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Are you ready for the new Auto Enrolment rate changes from April 2018?

Beginning on 6 April 2018, employers may be required to increase the amount of their contributions into their automatic enrolment pension. From 6 April employers will have to contribute a minimum of 2% and staff members will have to make up the total to 5%.

The contribution levels will continue to rise in 2019 until the employer is paying a minimum of 3% towards the pension and the total minimum contribution reaches 8% – with the member of staff making up the rest.

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).

Date Effective Employer Minimum Contribution Employee Contribution Total Minimum Contribution
Currently until 5 April 2018 1% 1% 2%
6 April 2018 to 5 April 2019 2% 3% 5%
6 April 2019 onwards 3% 5% 8%

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.

Communicating the changes to employees

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 employers to advise members about the increases, though they may wish to do so anyway to help minimise queries, or reduce the number of workers subsequently leaving their schemes. Employers should still be mindful of the need to consult their members if changes are made to the minimum contribution levels before the 6 April changes to contribution rates.

We expect that schemes should help support employers with communications to members, either by providing template letters or handling the direct communications for them.

Supporting employers with the changes

The increase in the minimum contributions should be simple to do, but early preparation is needed.  It is the employer’s responsibility to ensure that the pension scheme they use to meet their duties is a qualifying scheme, and that pension contributions are deducted correctly – but pension scheme trustees and providers, and payroll providers, have a key role in making the process work smoothly.
At Rawlinsons, we will provide you with the help and support you need to ensure the rate increase transition is implemented efficiently. Our software is designed to automatically implement the increases based upon the pension set up. Our internal controls will provide checks to ensure the pension percentages are increased accordingly in line with the Pension Regulator rates and that all fixed amount contributions are calculated to be in line with or above the required percentages.

If you have any queries regarding the Auto Enrolment rate changes please contact the Payroll Team.