The Changes in the Pension Contributions and what you need to know as an Employer

From 6 April 2019, there will be an increase in the pension contribution again, this is a good news for the employees as the employees will be getting even more out of their workplace pensions. Because the pension contribution comes out of the pre-tax salary, they will pay less income tax at 20%. The employees will also avoid the 12% NI contributions on the amount they sacrifice. For example, every £l68 they sacrifice from their pay packet, £l100 goes into their pension pot.

As a result of the changes the employer will pay a minimum contribution of 3% towards the pension, the staff therefore will pay a minimum of 5% with the total minimum contribution reaching 8%. The calculation for this type of scheme is based on a specific range of earnings. For the 2018/19 tax year this range is between £l6,032 and £l46,350 a year (£l503 and £l3,863 a month, or £l116 and £l892 a week). These figures are reviewed each year by the government.

Who is not affected by the scheme?

  1. An Employer who has Non-Eligible Workers do not have to take any action as a result of the changes. Non-Eligible workers are those workers who do not fit the eligibility criteria for auto enrolment. Those who earn over £l10,000 but are aged between 16 and 21 or between State Pension age and 74 are Non Eligible Workers, as are those aged between 16 and 74 but who earn between £l5,772 and £l10,000 per annum.
  2. or if they are already paying above the increased minimum amounts.

Who is Affected by the Scheme?

If you are in the Auto Enrolment Scheme, as an employer you can choose to pay the full amount of the total minimum contribution and in this case the staff will not pay at all, unless the scheme rules say that they have to make contributions. If the employer pays more than their minimum legal contribution but less than the total minimum contribution then their staff will need to pay the rest of the amount.

Are the minimum contributions different if the pensionable pay is calculated in a different way?

The increase in the contribution rates are different depending on the scheme that an employer uses. Each Scheme will have its own minimum contribution level depending on how the pensionable pay is calculated.

Scenario No. 1: If the contributions are calculated on the gross earnings, that means it does not include any bonuses, overtime etc then the minimum total; contribution will be 9% with employer contributing minimum of 4% and the staff contributing a minimum of 5%.

Scenario No. 2: If the contribution is calculated on the gross earnings and the total of the gross earning on which the contribution is calculated is at least 85% of their total earnings. Then the total minimum contribution will be 8%. The employer will contribute 3% while the staff will contribute the remaining 5%.

Scenario No.3: If the employer calculates the contribution based on all the elements of pay then the required total amount of contribution is 7%. In this case employer minimum contribution will be 3% while the employer contribution will be 5%.

Should I inform my staff?

The employer isn’t legally required to inform the staff of the changes. This is because when the staff were automatically enrolled for the first time they received a letter telling that the contributions will increase over the time. However, it will be a good practise if they want to do it.

For more advise and consultation, contact Taxaccolega, accountants in Croydon.

From 6 April 2019, there will be an increase in the pension contribution again, this is a good news for the employees as the employees will be getting even more out of their workplace pensions. Because the pension contribution comes out of the pre-tax salary, they will pay less income tax at 20%. The employees will also avoid the 12% NI contributions on the amount they sacrifice. For example, every £68 they sacrifice from their pay packet, £100 goes into their pension pot.

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