Pension auto-enrolment has been on the cards since it was first announced for workplace pensions back in 2014.
Auto-enrolment of staff in workplace pension schemes now applies to even the smallest of employers, although there are exclusions.
The current minimum contributions are 1% from the employer and 1% from the employee but these limits are scheduled to increase to 2% and 3% respectively from 6 April 2018.
The contributions will then increase to 3% from the employer and 5% from the employee from 6 April 2019. Employees will have a further opportunity to opt out of auto-enrolment.
The Pensions Regulator outlines the following key points about auto-enrolment contributions:
- contribution increases from the current minimum of a total contribution of 2% of qualifying earnings (inclusive of both employee and employer contributions) take place on 6 April 2018, rising to 5%, and on 6 April 2019, reaching a total minimum amount of 8% (again, inclusive of both employee and employer contributions). If the employer has chosen to use certification, there are 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 apply the higher rates in order to remain a qualifying scheme.
- if a pension scheme does not increase its minimum contribution levels in line with the legal requirements, it will no longer be a qualifying scheme for existing members and cannot be used for automatic enrolment.
- pension scheme trustees and providers, and payroll and software providers, should ensure their products support this legal requirement of automatic enrolment.