If your business has a workplace pension which complies with the auto-enrolment rules, that scheme must receive a minimum level of contributions on behalf of each employee who is enrolled in the scheme. This level of contributions is expressed as a percentage of the employee’s pensionable pay.
The rules of the particular scheme will define what pensionable pay is for each employee, as this can vary from scheme to scheme. For example, pensionable may be the amount paid between the NIC lower earnings and upper earnings limits: £6,032 to £46,350 for 2018/19.
The minimum total pension contribution from employees and employers for 2017/18 and earlier years was 2% of pensionable pay, with the employer contributing at least 1%. The total minimum contribution for 2018/19 jumps to 5%, and the employer must contribute at least 2%, with the remainder contributed by the employee.
There is no minimum contribution level set for employees, as many workplace pension schemes operate through salary sacrifice arrangements, so the employee’s pay is reduced to compensate for the pension contributions made by the employer. From 6 April 2018, where the employer pays the minimum amount, the employee’s contribution will triple from 1% to 3% of pensionable pay.
Such an increase in pension contributions will, in many cases, cancel out the tax savings from the rise in the individual’s personal allowance and NIC lower earnings threshold.
You may wish to review the amount your business is contributing to staff pensions, to ensure that your employees are not worse off in 2018/19. Remember, as an employer you are not permitted to encourage an employee to opt out of the workplace pension scheme. You must be very careful how you communicate the changes in pension contributions to your employees.
