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Increase in minimum pension contributions

23rd January 2018

From the 6 April minimum pension contributions will be increased to 5% and employers need to start giving serious consideration to what proportion of the upcoming increases they are willing to bear.

As part of their auto-enrolment duties employers are required to ensure employees receive minimum pension contributions. The total minimum pension contributions currently required are 2% with the employer contributing at least 1% of this. The government has chosen to increase these minimum pension contributions as follows: 

Date

Total Contribution

Minimum employer contribution

6 April 2018

5%

2%

6 April 2019

8%

3%

Given the above, employers should now be thinking about what proportion of the upcoming increases they are willing to bear.

For example, from 6 April 2018 an employer could choose to make employer pension contributions of 4% and leave employee pension contributions at 1% (resulting in total pension contributions of 5%).

Alternatively, if an employer wishes to continue making the minimum employer pension contributions required under auto-enrolment, then from 6 April 2018 it could increase its employer pension contributions to 2% and employee pension contributions to 3% (to get to total pension contributions of 5%).

If employers are thinking about raising employee contribution rates they will need to think carefully before they do so because:

  • if this requires a change to be made to the rules of the pension scheme the employer could fall under a legal obligation to carry out written consultation with affected members for a period of not less than 60 days prior to the change being finalised
  • wording in the employees’ contracts of employment relating to pension contributions will need to be reviewed as if the employee contribution is stated to be 1% steps will need to be taken to agree a variation to the contract of employment

Please note that all contribution rates quoted in this e-shot are by reference to “pensionable salary” as defined in the Pensions Act 2008. Where pension contributions are being made by reference to something other than this amount, the minimum percentage contribution rates stated above may be different and employers should confirm the relevant minimum contribution rates they are required to make to ensure they continue to comply with their auto-enrolment duties.

Should you wish to discuss anything contained in this article, please contact a member of Higgs’ Employment team or call 0345 111 5050.

 

 

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