Auto Enrolment – are you ready for the changes?

04-Apr-2018

Between 6 April 2018 and 5 April 2019 the minimum contribution to pensions is 5% with at least 2% from the employer. From 6 April 2019 the minimum contribution increases to 8% with at least 3% from the employer.

Key points

  • You need to deduct contributions from your staff’s salaries and pay these and your contributions over to the scheme on time and accurately.
  • After you have set up your scheme, if you’re unsure what to pay and when, contact your pension scheme provider or trustees.
  • If you fail to contribute to your staff pension scheme correctly or on time you risk being fined by the regulator.
  • There are specific records and payment information you must keep.

How much you must pay

The amount you must contribute to the pension scheme is determined by the scheme’s rules. However, if you’re using the scheme for automatic enrolment there are minimum contributions you must pay.

The minimum contributions that you must pay into your staff’s pension scheme are shown in the table below – they’re currently a total contribution of 2% with at least 1% employer contribution.

Minimum contributions are being introduced gradually over time. You will usually pay pension scheme contributions either as a fixed amount or based on a percentage of earnings.

Date Employer minimum contribution               Total minimum contribution
Employer's staging date to 05/04/18                1% 2% (including 1% staff contribution)
06/04/18 — 05/04/19 2% 5% (including 3% staff contribution)
06/04/19 onwards 3% 8% (including 5% staff contribution)

 

Your minimum employer contribution

Pension contributions are usually expressed as a fixed sum or a percentage of earnings. If they’re expressed as a percentage you will need to confirm salaries with your pension provider / trustees regularly as necessary from time to time.

You also need to decide what elements of staff pay are used to calculate pension contributions, subject to any overriding legislative requirements, such as in relation to automatic enrolment. You may decide that only basic pay is pensionable but not bonus or overtime payments. Let your pension scheme know what you decide.

Automated payroll

If your system’s automated, your payroll system or provider needs to calculate contributions and make the correct deductions from staff pay. You should also make sure your payroll system is compatible with the chosen pension scheme. If you’re unsure, check your payroll software or contact your payroll provider.

Remember, you need to tell payroll what rate of contribution is due and what earnings to use to calculate contributions.

When you must pay your contributions

You need to pay your contributions to your staff pension scheme on time. This includes calculating and deducting contributions from your staff's salaries. You must agree the due dates for paying contributions to the scheme with your trustee or provider.

However, the law requires that when you deduct contributions from your staff's pay you must pay these to your staff pension scheme no later than the 22nd day (19th if you pay by cheque) of the next month.

There are special rules for the first deduction of contributions on automatic enrolment under the Pensions Act 2008.

You risk being fined by the regulator if you don’t pay on time.

You may agree an earlier date to pay your employer contributions with your trustees or administrators. However, it’s easier if you pay your contributions on the same day as your staff contributions.

Keeping payment information and records

 Incorrect or out-of-date information is the main cause of payment failure and disputes between an employer and their scheme provider or trustees.

You must keep information and records about what contributions you pay to your pension scheme for six years (in most cases). This will help you ensure the correct contributions are paid and provide evidence if there’s a dispute.

Records you should keep include:

  • staff gross earnings
  • staff and employer pension scheme contributions due to be paid (and if different the actual amounts paid)
  • You need to keep information on contributions and membership up to date and communicate any changes to your pension scheme provider or trustees.

As part of your normal day-to-day administration arrangements it’s good practice to provide the following ‘payment information’ to your scheme:

  • any changes to a member’s earnings or contribution entitlement
  • details of members leaving or joining the scheme

Your pension scheme provider or trustees need this payment information to meet their duties such as monitoring contributions and reporting material payment failures to the regulator.

You should agree a process for this when you set up the scheme. This may include you giving updated earnings information at the same time as you pay contributions across to the scheme.

Providers or trustees may ask you for additional payment information which you must provide within seven working days. You risk being fined by the regulator if you don’t provide this information on time.

For further information please contact our Payroll Manager Nicky Webster on 0151 649 1700 or email nicky@janmcdermott.co.uk.

Information taken from: http://www.thepensionsregulator.gov.uk/employers/contributions-funding.aspx