Skip to main content
Business advisersIn this
section

Are your clients ready for contribution increases?

Do your clients know about the increases in minimum pension contributions?

Make sure they understand how these changes will apply to them and their staff, and prepare for the minimum contributions going up.

On this page

Key points

  • by law, minimum contribution amounts are required to increase at set times
  • increases from the current total minimum contribution of 2% of qualifying earnings take place on 6 April 2018, rising to 5%, and on 6 April 2019, reaching a total minimum amount of 8%. If your client has chosen to use certification, their total minimum contribution rates will also increase on these dates
  • your client and their staff can choose to pay more than the minimum contributions if they wish
  • your client can decide to pay the total minimum contribution, which may mean their staff don't have to make up any shortfall, and may not have to pay into the pension at all, depending on the scheme's rules
  • to remain a qualifying scheme, all automatic enrolment pension schemes with contribution rates that would be below the minimum amount after the rate increases must apply the higher rates
  • if your client operates a defined benefit (DB) scheme, these contribution increases don't apply and they don't need to take any action

What's happening?

By law, on 6 April 2018, your clients are required to increase the amount of their minimum contributions into their staff's automatic enrolment pension to at least of 2% of qualifying earnings. Members of staff will have to pay the shortfall needed to make the total minimum contribution up to 5%, including your client's contribution.

The minimum contribution levels will rise again on 6 April 2019, with your client paying a minimum of 3% towards the pension, and the total minimum contribution reaching 8% - with staff making up the difference.

Your client 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.

Both your client and their staff can choose to contribute more than the minimum amounts to the pension if they want to.

If your client pays in more than their legal minimum contribution, but less than the total minimum contribution shown in the table below, then their staff will need to pay in at least enough to make up the shortfall between these amounts.

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 £5,824 to £43,000 per year (£486 to £3,583 per month, or £112 to £827 per week), and including certain elements of pay.

Date effective Employer minimum contribution Staff 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%

Your clients may have agreed with their scheme provider to calculate minimum contributions in a different way. If this is the case you will need to apply different increases - details on the increases for these schemes can be found below.

Schemes with different rules on contributions

If your clients already have workplace pension schemes in place which they have self-certified for use with automatic enrolment, they will have different minimum contribution increases to those set out above - depending on the type of scheme.

The new rates for these schemes can be found in the tables below.    

Certification criteria

There are three alternative sets of minimum contribution requirements when using an existing DC scheme for automatic enrolment.

Each set has its own minimum contribution levels based on how pensionable pay is calculated. If your client's scheme doesn't meet the criteria in any one of these sets, then it can't be used for automatic enrolment.

The tables below show the stages of contribution increases for each of these sets:

Set 1: contributions calculated on gross earnings

Your client calculates contributions based on gross earnings. They don’t include bonus, overtime, commission or certain staff allowances (such as shift pay or relocation allowance) in the calculation.

Date effective Employer minimum contribution Staff contribution Total minimum contribution
Currently until 5 April 2018 2% 1% 3%
6 April 2018 to 5 April 2019 3% 3% 6%
6 April 2019 onwards 4% 5% 9%

Set 2: contributions calculated on gross earnings based on at least 85% of total earnings

Your client calculates contributions based on gross earnings. They don’t include bonus, overtime, commission or certain staff allowances (such as shift pay or relocation allowance) in the calculation. Your client will have checked that the gross earnings used to calculate contributions for all staff in the scheme when added together were at least 85% of their total earnings.

Date effective Employer minimum contribution Staff 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%

Set 3: contributions calculated on all earnings

Your client calculates contributions based on all elements of staff pay and all earnings.

Date effective Employer minimum contribution Staff 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% 4% 7%

Considerations for self-certified schemes

If your clients have used certification to allow an existing scheme to be used for automatic enrolment, then it's possible that the certification period may include one or both of the increases in the minimum contribution levels. If they still need help, your clients should check their scheme rules and speak to their pension provider or payroll provider.

The scheme rules or terms and conditions will need to reflect the increases in the minimum contributions, and your client's payroll will need to be ready to calculate and deduct the increased amounts.

The Department for Work and Pensions has produced guidance for employers on the process of certification, including a template of the certificate. This template includes a statement that the employer certifies at the current minimum up to 5 April 2018, and then at the increased minimum rates from 6 April 2018 and 6 April 2019.

Alternatively, your clients could have chosen to certify at the higher increased amount for the whole certification period. In this case there will be no need for their payroll to make a change on 6 April 2018, as the contributions will already be being calculated and deducted over the increased minimum contribution rate.

If the employer has not done either of these, then they may need to end the certification period early and re-certify from 6 April 2018 with the correct total minimum contribution.

Supporting your clients with the increases

The increase in minimum contributions should be simple to do, but your clients need to start thinking about the increases early, and plan ahead for when they come into effect from 6 April 2018 and 6 April 2019.

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 important that their 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.

Pension schemes should already be making necessary changes to support the increases, and will communicate this, but it's still your client's responsibility to make sure they're using a qualifying scheme for their automatic enrolment duties, and that the right amount of pension contributions are deducted.

Your client's scheme should be able to help support them with communications to staff. There is no legal requirement for your clients to write to their staff, but this is good practice and something they may want to consider doing.

Employers with increases set up for October 2017

Originally the first phase of the increases was due to start from October 2017. However, in April 2015 these dates were changed by the government to start from 6 April 2018.

Your clients may have already been planning to make the increases from October 2017.

If they would still like to make the increases from this date, they can. Your clients should speak to their scheme provider and payroll provider to find out how to do this.

Changes to scheme rules

Ensuring the pension scheme is qualifying

Most pension schemes should already be making arrangements for the scheme rules to allow for the increased minimum contributions. In some cases the scheme contribution rates may already be above the minimum required, so no change is necessary.

Pension providers should change the scheme rules and governing documentation for your clients if their scheme requires contributions at the current minimum amount, and the rules don't reflect the increased minimums.

If their scheme doesn't support the increased contributions, your clients should speak to their pension provider about amending the scheme rules to allow the new rates.

Employer consultation

If your clients want to change their pension scheme’s rules or terms and conditions to increase contributions from staff in the scheme, normally they would need to consult with the staff affected.

If changes 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.

Ensuring the correct contributions are deducted

It's vital that your client's payroll is ready to deduct the increased minimum contributions when they rise on 6 April 2018 and 6 April 2019, and knows when and how much to deduct.

If your clients use an outsourced payroll service, they should check with them that they're ready for the increases, and make sure they know when to deduct them.

If they do their own payroll in-house, they need to be certain that their software is ready for these increases. In order to avoid any problems, they should speak with their payroll provider so they know how to make the changes required to their payroll system.

If you run payroll for your client, you should make sure that the contributions increases have been put in place correctly, including for the first payroll run where the new rates may take effect part way through the pay period. 

Pro-rated contributions

It's possible that the increases will take place part way through a worker's pay period. This is especially the case if your client has chosen to use certification, or if the scheme rules or terms and conditions use qualifying earnings as the definition of pensionable pay, and the pay reference period is not the one aligned to tax weeks or months.

For example, your client could have a pay period of 1 to 30 April, with the increases effective from 6 April.

This means that an increased pro-rated pension contribution deduction may be required for a pay period which includes 6 April 2018 or 6 April 2019. In these circumstances, the contribution for the pay reference period up to 6 April would be calculated based on the old rates, and from 6 April up to the end of the pay reference period being based on the new rates.

If your client's payroll does not process pro-rated contributions, they should talk to the pension provider and payroll provider, and agree how best to deduct, and pay over to the scheme, the amount due.

They may decide to apply the increased rate for any pay period that includes 6 April 2018, even if the pay date is before this date. This would work in the same way for the 6 April 2019 increase.

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, though they may wish to do so anyway to help minimise queries, or reduce the number of workers who decide to leave their schemes as a result of the increases. Your clients should still consider the need to consult their staff if they decide to increase the minimum contribution levels before the 6 April 2018 and 6 April 2019 increases.

Pension schemes will help by writing to your clients' staff to let them know what is happening.

See related content

home.business_advisers.automatic_enrolment_guide_for_business_advisers.important_changes_to_automatic_enrolment.minimum_contribution_increases_planned_by_law_(phasing).page