Pensions: changes from 6 April 2019

The pensions legislation is a bit of a minefield and businesses are advised to take professional advice (from a financial advisor or accountant) to ensure they are meeting their statutory obligations, even where they manage their payroll in-house.

Increases in contribution rates

The minimum contributions you and your staff pay into your automatic enrolment workplace pension scheme will increase from 6 April 2019. This is also sometimes known as phasing.

It is your responsibility to make sure these increases are implemented.

Who does this apply to?

All employers with staff in a pension scheme for automatic enrolment must take action to make sure at least the minimum amounts are being paid into their pension scheme. This applies to you whether you set up a pension scheme for automatic enrolment or you decided to use an existing scheme.

However, you don’t need to take any further action if you don’t have any staff in a pension scheme for automatic enrolment, or if you are already paying above the increased minimum amounts.

If you’re using a defined benefits pension scheme the increases do not apply.

What are the increases?

This table below shows the minimum contributions you must pay and the date when they must increase:

Date	Employer minimum contribution	Staff contribution	Total minimum contribution
New rate: 6 April 2019 onwards	3%	5%	8%
Current rate: 6 April 2018 to 5 April 2019	2%	3%	5%

The Devil in the Detail: what is pensionable and does this matter?

By law a total minimum amount of contributions must be paid into the scheme. You, the employer, must make at least the minimum employer contribution towards this amount. and your staff member must make up the difference.

If you decide to cover the total minimum contribution required, your staff won’t need to pay anything.

The amount you and your staff pay into your pension scheme will vary depending on the type of scheme you have chosen and the rules of that scheme. Your staff contribution may also vary depending on the type of tax relief applied by your scheme. You can find this information in the scheme documents sent to you when you set up the pension scheme or you can speak to your pension provider.

Most employers use pension schemes that from April 2019 will require a total minimum of 8% contribution to be paid. The calculation for this type of scheme is based on a specific range of earnings. For the 2018/19 tax year this range is between £6,032 and £46,350 a year (£503 and £3,863 a month, or £116 and £892 a week). These figures are reviewed each year by the government.

When you are calculating contributions for this type of scheme you include the following:

• salary
• wages
• commission
• bonuses
• overtime
• statutory sick pay
• statutory maternity pay
• ordinary or additional statutory paternity pay
• statutory adoption pay

What if I am using a pension scheme which requires different minimum contributions?

You may have agreed with your pension scheme to base minimum contributions on different elements of staff pay. If this is the case you will need to apply different increases.

If you calculate contributions using different elements of staff pay, you will need to use the tables below to work out which minimum contribution increases apply to you.

By law a total minimum amount of contributions must be paid into the pension scheme. You, the employer, must make a minimum contribution towards this amount and your staff member must make up the difference. If you decide to cover the total minimum contribution required, your staff won’t need to pay anything.

There are three ways of working out the minimum contribution increases using different elements of staff pay. These are known as sets. The staff contribution rates may vary depending on the type of tax relief applied by your scheme. If you are unsure which set applies to your scheme check with your provider.

Set 1: contributions calculated on gross earnings

You calculate contributions based on gross earnings. You don’t include bonus, overtime, commission or certain staff allowances (such as shift pay or relocation allowance) in the calculation.

Date effective	Employer minimum contribution	Staff contribution	Total minimum contribution
New rate: 6 April 2019 onwards	4%	5%	9%
Current rate: 6 April 2018 to 5 April 2019	3%	3%	6%

Set 2: contributions calculated on gross earnings based on 85% of total earnings

You calculate contributions based on gross earnings. You don’t include bonus, overtime, commission or certain staff allowances (such as shift pay or relocation allowance) in the calculation. You will have checked that the gross earnings for all staff in the scheme when added together were at least 85% of their total earnings.

Date effective	Employer minimum contribution	Staff contribution	Total minimum contribution
New rate: 6 April 2019 onwards	3%	5%	8%
Current rate: 6 April 2018 to 5 April 2019	2%	3%	5%

Set 3: contributions calculated on all earnings

You calculate contributions based on all elements of staff pay and all earnings.

Date effective	Employer minimum contribution	Staff contribution	Total minimum contribution
New rate: 6 April 2019 onwards	3%	4%	7%
Current rate: 6 April 2018 to 5 April 2019	2%	3%	5%

Finally… Pension schemes that don’t require an increase in minimum contributions

If you’re using a defined benefit scheme then the increases do not apply. Defined benefit schemes are mainly used by large employers and employers in the public sector and are sometimes known as ‘Final Salary Schemes’ or ‘Career Average Schemes’. If you are unsure if this applies to you check your scheme documents or if you are still unsure speak to your scheme provider.

If you are using a hybrid scheme (a combination of defined benefit and minimum contributions) you will need to make increases to the minimum contributions section of the scheme.