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ESG Diligence: The Key To Sustainable M&A Transactions
AAB / Blog / Auto Enrolment – Contribution Changes April 2018 & 2019
BLOG22nd Jan 2018
Under auto-enrolment law, minimum contributions to both (group) personal pension schemes and trust-based occupational defined contribution (DC) schemes will increase from 6 April 2018 and again from 6 April 2019, with the aim of improving long term saving and financial stability for peoples retirement.
Companies should be aware of how contribution changes affect their own pension scheme as there are a number of factors that can impact their duties and some firms may have a duty to consult with their staff prior to the change.
How minimum contributions increase in stages
Beginning on 6 April 2018, employers and employees may be required to increase the amount of contributions being paid into their workplace pension in order to satisfy the new statutory minimum requirements.
There are a number of contribution structures that employers may have selected and it is important they understand which one applies to their pension scheme in order to avoid any potential pitfalls. Much of the information available in the press or from the Pensions Regulator will generally refer to the levels for Qualifying Earnings (QE), however, there is not much point focusing on that information if an employer has chosen to self-certify using a different contribution or earnings basis.
If we look at the QE table below, the contribution levels continue to rise until the employer is paying a minimum of 3% towards the pension and the total minimum contribution reaches 8% – with the employee making up the difference.
Each contribution basis, depending on the definition of pensionable earnings the employer has selected, has different increase requirements so it is important for employers to be aware of what applies to them and any action that needs to be taken to inform staff of the changes prior to April 2018.
Other Points to Consider
There are a number of other areas employers will need to consider and indeed understand prior to making any changes this year. Many employers will have an agreement with their pension scheme provider detailing how contribution rises are expected to be applied. For example, an employer could choose to avoid making changes two years in a row and simply implement the April 2019 contributions or higher. Being able to do this will depend on the pension providers ability to deal with the request and may require consultation with their staff if they have a different expectation due to previous communications.
It is also important to review your payroll software requirements or communicate with your payroll provider to check if any updates are required and to ensure any changes are correctly applied. All businesses will want to avoid having disgruntled employees who have a pension deduction taken from salary that they were not expecting.
The changes in April 2018 will affect millions of employees all over the UK and the increase to contribution levels will hopefully be embraced. Should you require further information to understand the communications required, how to make contributions as tax efficiently as possible or indeed any other questions relating to auto enrolment, please contact Richard Petrie, Employee Benefits Manager, or your usual AAB advisor.
How AAB can help you with
Accurate, efficient handling of payroll functions and employment tax are fundamental to your success. We help you get them right – easing your workload, ensuring compliance in the UK and globally, and keeping your employees satisfied. Our comprehensive services for payroll and employment taxes address all these issues and help you operate efficiently, confidently and compliantly. Whatever the size of your business, from start-up to global player, all the services you require from us will be tailored to your specific needs and integrated to provide seamless support.
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