Workplace pension – Contributions to rise from 6th April 2019

PensionTransferExpert.com

8th April 2019

Introduction

For employers operating defined contribution pension schemes to meet their automatic enrolment requirements, contribution rates are set to rise from 6 April 2019. This is the 2nd successive annual increase in minimum contributions and the last one which is currently scheduled to take place under current pension legislation.

 

Key points

For the pension scheme to remain a “qualifying scheme” for automatic enrolment purposes, a defined contribution arrangement must continue to meet the minimum contribution threshold requirements.

Where an employer is considering introducing or increasing employee contributions, it will generally need to consult with affected members for a minimum of 60 days.

 

The new minimum contributions

The following rates will apply from April 2019, assuming the statutory default mechanism of “qualifying earnings” (earnings between £6,032 and £46,350 for 2018/19) is used to calculate contributions:

  • Employer minimum = 3%
  • Overall minimum = 8%

Important to know however, that many employers do not use the statutory default mechanism to meet minimum contribution requirements. In those instances the actual percentage increase which will apply in a particular DC arrangement will be dictated by the elements of income which are pensionable.

 

Actions to consider

  • Employers should check what their scheme rules currently say about minimum compulsory contributions, as some schemes may already meet the legislative standard applicable from 6 April 2019 onwards. If not, an employer should consider its options.

 

  • As the automatic enrolment legislation does not require minimum employee contributions as such, it is up to the employer to decide how to bridge the gap between its minimum contributions and the total minimum contribution requirements. For example, looking at both ends of the spectrum, the employee could be asked to make up the difference between the two amounts or, alternatively, the employer could bear the entire cost. There are also several variations in between.

 

  • Where an employer is considering introducing or increasing member contributions, it will generally need to consult with affected members for a minimum of 60 days. Employers looking to adjust member contributions to meet the new minimum requirements from 6 April 2019 will therefore need to bear these requirements in mind.

 

  • It may be necessary for the pension scheme’s governing documentation to be amended to deal with the increase in minimum contributions. In addition, the scheme’s trustees will have to revise their payment schedule which, among other matters, sets out the rates of contributions payable towards the scheme by or on behalf of the employer(s) and the active members.

 

  • Employers must ensure that their payroll systems are prepared to calculate and deduct any change in contributions. If there is a third-party provider, employers should liaise with them as soon as practicable to ensure that they will be ready for any changes.

 

If you’d like any more information on this please contact Chris Broome on chris@longhurst.co.uk or 01327 223243.

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