The minimum contributions that businesses and staff must pay into in a workplace pension scheme are increasing. There will be at least two increases over the next few years, one in April 2018 and one in April 2019.
The basic scheme that all businesses have to adopt means employers must currently be paying 1% towards workers’ pensions. Employees will also be contributing 1% unless they choose to opt out.
In April, this will rise to 2% for you and 3% for your employees. From April 2019, this will again rise to 3% for you and 5% for your employees.
If you’ve got a different scheme, then these figures could be slightly different and you’ll have to look up the terms to find out exactly how much you’ll need to pay.
These new changes will apply to all business that employ staff. Even if you’ve previously not had to pay pension contributions, you should still check whether you’ll need to this year.
Your circumstances may have changed if your employees are now eligible based on age (are over 22) or are now earning over the £10,000 threshold. If you don’t make the required changes by April 2018, you will risk being fined.
How to get prepared
You will need to work out who these new rates will apply to and that you’re ready to apply the increases from 6 April 2018. You can use the Pensions Regulator’s employer contribution tool to work out how much you’ll need to pay for each member of staff.
If you’re currently using software to manage your payroll, then this needs to be updated to include the increases. If the 6 April is in the middle of a pay period, you still need to make sure that these changes are in place before 6 April rolls along so you may have to set it up sooner rather than later.
You should also tell your staff about these increases to let them know that their contributions are to go up alongside your own as an employer.
Ideally you should try to get this all done well ahead of the deadline in case of delays.
With the increases taking more money out of workers’ pay, it’s expected that more people are going to start opting out.
Kate Smith, head of pensions at Aegon said: “This will be the first big test of auto-enrolment. Policymakers and the pension industry will be on the edge of their seats as they wait to see how employees and employers react.”
However, the official advice for employees is not to opt out. Although there is some salary sacrifice now, it will benefit employees greatly in the future.
As an employer you may be concerned about the cost of these increases. However, it is illegal for you to try to encourage people to opt out either with promises of pay rises or with sanctions.
Are you prepared for the next phase of auto-enrolment? What’s your opinion on auto-enrolment in general? Please share your thoughts.
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An experienced business and finance writer, sometimes moonlighting as a fiction writer and blogger.