Contribution rates for workplace pensions increased on 6 April 2018, with more increases due in coming years.
All employers have had the duty to enrol their employees in a pension scheme, since February 2018. The previous, current and future contribution rates are:
2017/18 2018/19 2019/20 onwards
Employer minimum contribution 1% 2% 3%
Employee contribution 1% 3% 5%
Total minimum contribution 2% 5% 8%
Earnings band £5,876 to £45,000 £6,032 to £46,350 TBC
Employee contributions make up any shortfall of the total minimum contribution. So, if the employer contributes 4% for 2018/19 the employee only needs to contribute 1%. If the employer pays in at least 5% no employee contributions are required.
Both employees and employers can contribute more than the minimum if they wish, and many employees would be wise to do so. The rough rule of thumb is that total contributions need to be half of an employee’s age when they start saving, which means minimum contributions are in many cases going to be insufficient.
The situation is more complicated where an employer uses an existing pension scheme to meet their auto-enrolment requirements. This is because the definition of pensionable earnings is likely to differ. Any one of three different standards must be met by 6 April 2019 (percentages for 2018/19 are shown in brackets):
• Total minimum contributions of 9% (6% in 18/19), with at least 4% (3% in 18/19) from the employer.
• Where pensionable pay constitutes at least 85% of earnings, total minimum contributions of 8% (5% in 18/19), with at least 3% (2% in 18/19) from the employer.
• Where all earnings are pensionable, total minimum contributions of 7% (5% in 18/19), with at least 3% (2% in 18/19) from the employer.
Pension schemes that do not increase minimum contribution levels in line with the legal requirements will no longer be a qualifying scheme and cannot be used for automatic enrolment.