Important
This page relates to the legal requirement for minimum pension contributions to be gradually increased, with the highest minimum level being reached in April 2019.
All automatic enrolment pension contributions should now be at this level. The information below is retained for reference and in case of the need to backdate contributions. No additional minimum contribution increases are currently planned.
Under automatic enrolment, minimum pension contributions were required to increase over time. This happened on set dates, and was a key feature of automatic enrolment that should have been incorporated into your product offerings. Though what was known as 'phasing' has now finished, the information on this page is here to help you for reference purposes.
A flow diagram (PDF, 136KB 1 page) is available as a visual aid - transcript of this document (PDF, 168KB, 2 pages) is also available for reference
Are you an employer?
This page is intended specifically for pension, payroll, and software providers, and may not have everything you need.
A dedicated page for employers on the changes to minimum payments is also available, which you may find more helpful. Click the link to access it.
Being ready for the change in minimum payments
Your products should have been compatible with pension payments going up by law, and adapted to aid your customers.
Key points
- by law, the minimum amount that employers and staff must pay into automatic enrolment pensions went up on 6 April 2019
- the total minimum contribution increased from 5% to 8% of qualifying earnings on 6 April 2019. If the employer chose to use certification, there were 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 have applied the higher rates in order to remain a qualifying scheme
- if a pension scheme did not increase its minimum contribution levels in line with the legal requirements, it is no longer a qualifying scheme for existing members and cannot be used for automatic enrolment
- pension scheme trustees and providers, and payroll and software providers, should have ensured their products supported this legal requirement of automatic enrolment
How minimum contributions went up in stages
By law, on 6 April 2019, employers must have increased the amount of their minimum contributions into their staff's automatic enrolment pension to at least 3% of qualifying earnings. Staff members have to make up whatever shortfall remains of the new total minimum contribution up to 8%, including the employer's contribution.
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):
| Date effective | Employer minimum contribution | Staff contribution | Total minimum contribution |
|---|---|---|---|
| 6 April 2019 onwards | 3% | 5% | 8% |
| 6 April 2018 to 5 April 2019 | 2% | 3% | 5% |
| Historic rates, up until 5 April 2018 | 1% | 1% | 2% |
Self-certification scheme increases
Employers may already have had DC or DB workplace pension schemes.
Rather than needing to set up a new automatic enrolment scheme, these schemes can sometimes be used to put staff into under the employer's automatic enrolment duties, as long as they meet certain conditions.
Employers can self-certify that their scheme meets the minimum requirements to qualify for automatic enrolment. In these cases, schemes are divided into three sets, each of which have their own qualifying conditions, with particular requirements under automatic enrolment for each of them.
If the scheme doesn't meet the standards of one of these sets, then it cannot be used for automatic enrolment:
Set 1
As from 6 April 2019, a total minimum contribution of at least 9% of pensionable pay (at least 4% of which must be the employer’s contribution).
Set 2
As from 6 April 2019, a total minimum contribution of at least 8% of pensionable pay (at least 3% of which must be the employer’s contribution), provided that pensionable pay constitutes at least 85% of earnings (the ratio of pensionable pay to earnings can be calculated as an average at scheme level).
Set 3
As from 6 April 2019, a total minimum contribution of at least 7% of earnings (at least 3% of which must be the employer’s contribution) provided that all earnings are pensionable.
The table below demonstrates the phases of contribution increases for each of the above sets, with the employer paying only their minimum and the staff contribution shown in brackets:
Set 1 phasing
| Date effective | Employer minimum contribution | Staff contribution | Total minimum contribution |
|---|---|---|---|
| 6 April 2019 onwards | 4% | 5% | 9% |
| Current rates, from 6 April 2018 to 5 April 2019 | 3% | 3% | 6% |
| Historic rates, up until 5 April 2018 | 2% | 1% | 3% |
Set 2 phasing
| Date effective | Employer minimum contribution | Staff contribution | Total minimum contribution |
|---|---|---|---|
| 6 April 2019 onwards | 3% | 5% | 8% |
| Current rates, from 6 April 2018 to 5 April 2019 | 2% | 3% | 5% |
| Historic rates, up until 5 April 2018 | 1% | 1% | 2% |
Set 3 phasing
| Date effective | Employer minimum contribution | Staff contribution | Total minimum contribution |
|---|---|---|---|
| 6 April 2019 onwards | 3% | 4% | 7% |
| Current rates, from 6 April 2018 to 5 April 2019 | 2% | 3% | 5% |
| Historic rates, up until 5 April 2018 | 1% | 1% | 2% |
Supporting employers with the changes
The increase in the minimum contributions should have been simple to do.
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.
We expected schemes to help support employers with communications to members, either by providing template letters or handling the direct communications for them.
If the pension scheme being used for automatic enrolment required contributions at the previous minimum amount then the increased minimum contribution levels needed to be reflected in the pension scheme’s rules and other governing documentation in time for 6 April 2019.
In most cases, changing the scheme rules and governing documentation is be the responsibility of the pension scheme trustees or managers.
Then, in order to ensure that the amount due under the scheme rules or governing documentation is paid across to the scheme on time, the employer's payroll needed to be ready to calculate and deduct the increased contributions when they rose on 6 April 2019.
Our guidance below takes you through the steps that needed to happen to support employers in complying.
Ensure the pension scheme is qualifying
Pension scheme trustees and or managers (in the case of personal pension providers) should have looked at the rules or terms and conditions of the scheme to ensure they reflected the need to increase the minimum contribution levels on 6 April 2019.
Some rules or terms and conditions may have referred explicitly to the increased rates, while others may simply refer to the rates set in legislation.
In some cases, the contribution rates may already have been above the minimum required so no change was necessary. But, if the pension scheme that was being used for automatic enrolment required contributions at the previous minimum amount and the rules or terms and conditions did not reflect the increased minimums, they will have needed to be amended. Otherwise the scheme will not have been qualifying and the employer will not be able to use it to meet their automatic enrolment duties after this time.
Managers of group personal pensions should also have ensured that the qualifying agreements they had with the employer and members, which set out the terms and provisions of the scheme, reflected the increased rates as necessary.
Trustees of occupational schemes should have ensured that the payment schedule they had with the employer was also updated to reflect the minimum contribution rates set out in the scheme rules.
Employer consultation
Changing a pension scheme’s rules or terms and conditions to increase member contributions normally requires employers to consult with the scheme members.
Consultation is only necessary if the employer has 50 or more employees, which is determined by calculating the average number of employees in the previous 12 months, including leavers.
If changes were needed as a result of the increase in the minimum contributions then pension scheme trustees and providers will need to consider, and advise the employer, whether existing scheme members need to be consulted about the proposed change.
Where the scheme rules or terms and conditions were already set to increase contributions to the minimum levels on 6 April 2019, the employer will not need to consult members before deducting the increased amounts. However, they should still notify members that increased contributions are due to be taken.
So where, for example, the rules or terms and conditions include increases on 1 October 2017 and 1 October 2018, the employer may decide to continue with increases on that date and not delay until April 2018 and 2019. They may do so without consulting members, as long as they still inform them of the new contribution rates.
If the change is being made to ensure the scheme remains qualifying - that the rules or terms and conditions are being amended purely to reflect the minimum increases set out in law - the employer will not need to consult.
If the employer wishes to amend the scheme rules or terms and conditions to increase member contributions at a different time or by a different rate, they will need to consult members.
Member choice
If a member does not wish to pay the increased contributions due on 6 April 2019 the scheme rules or terms and conditions may allow them to remain at the lower contribution rate, or to reduce their contributions again after the increase.
This will mean they continue to be a member of the scheme, but as contributions are below the minimum level required by law, the scheme will not be qualifying for them.
Depending on the scheme, the member may no longer receive employer contributions.
Ensure the correct contributions are deducted
It is important that the employer's payroll was ready to deduct the increased contributions from 6 April 2019, and knew when and how much to deduct.
To help support employers, payroll providers and payroll software developers should have considered whether increases can be automatically built into their systems.
If the scheme rules or terms and conditions already met the minimum contribution levels, the pension scheme was qualifying. However, the employer's payroll service provider needed to know when to deduct the increased contribution amounts.
If the employer chose to use certification - or if the scheme rules or terms and conditions used qualifying earnings as the definition of pensionable pay, and the pay reference period was not the one aligned to tax weeks or months - then the contribution increases were likely to occur part way through a worker's pay period. For example, a pay period of 1 to 30 April, with the increase effective from 6 April.
This means that a pro-rated pension contribution deduction may be required for a pay period which includes 6 April 2019. If this is the case, 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 the employer's payroll does not process pro-rated contributions, the employer, pension provider and payroll provider should agree how best to deduct the amount due.
For example, they may agree to apply the contribution rate applicable on the date earnings are paid, so if the pay date is on or after 6 April 2019, contributions for the full pay period are deducted at the increased rate.
Alternatively, they may decide to apply the increased rate for any pay period that includes 6 April, even if the pay date is before 6 April.
To ensure there are no compatibility problems between payroll and pension scheme processes, if scheme trustees or providers have a preference for how contributions are deducted when minimum contributions increase, they should let employers and payroll providers know well in advance.
Certification
If the employer has chosen to use certification, it's possible that the certification period may include one or both of the increases in the minimum contribution levels. Employers may approach their pension provider or payroll provider for help.
The process of certifying that the scheme can be used as a qualifying scheme is separate from the process to increase the minimum contributions. The scheme rules or terms and conditions will still need to reflect the change in the minimum contributions as above, and the employer’s payroll will still need to be ready to calculate and deduct the increased amounts as above.
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 that the employer certifies at the old minimum up to 5 April 2018, and then at the increased minimum from 6 April 2018 and 6 April 2019.
Alternatively, the employer could choose to certify at the higher increased amount for the whole certification period. In this case there will be no need for the employer's payroll to make a change on 6 April 2018 (or 6 April 2019, if they chose to certify at those rates), as the contributions will already have been calculated and deducted at the increased minimum contribution rate.
If the employer has not done either of these, then they will need to end the certification period early and re-certify from 6 April 2018 with the correct total minimum contribution.
Members 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 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.
Schemes should consider how they can support employers with communications to members. We expect them to either provide template letters or handle the direct communications for them.