Pension changes 2019: Need-to-know
Handy guidance on the pension auto enrolment scheme and details on the new minimum contribution levels coming into effect in April 2019.
The pension auto enrolment scheme is a government initiative. Introduced in 2012, its aim is to help more people save for their later life.
Minimum contributions are set to increase later in the year.
Currently, the minimum levels of contribution are 2% from employers and 3% from employees, amounting to a minimum contribution level of 5%. As of April 2019, the total minimum contribution will increase to 8%: 3% from an employer and 5% from an employee.
With these changes coming into effect in April, this useful guidance from Croner – the DBA’s HR and employment law partner – will help prepare your business.
And if you have any further questions about pension contributions or other employment issues, as part of your DBA membership you can call the free HR and employment law advice line on 0844 561 8133. Simply login to dba.org.uk to access the DBA scheme number and quote this at the start of your call.
Background on auto enrolment
Under auto enrolment all employers have had to ‘automatically enrol’ their eligible staff into a workplace pension scheme since 6 April 2018. A workplace pension enables staff to prepare for their retirement but is arranged by their employer. A benefit for staff is that the employer must pay money into the scheme.
For someone to be auto enrolled, he or she needs to:
- Be at least 22 years old.
- Earn an annual salary of at least £10,000.
- Work in the UK.
- Not already be in a suitable workplace scheme.
If he or she meets these criteria, they will also be eligible even if they’re away on maternity, adoption or carer’s leave. The same goes for if they’re on a short-term contract or an agency pays their wages.
If one of your employees earns less than £10,000, but more than £6,032 (for the tax year 2018-19) then you don’t have to auto enrol them into the scheme. However, the employee can still ask to join, and you can’t refuse them. Once you’ve enrolled them in this case, you must make contributions for them.
To make your employees aware of the scheme, you should let them know in writing. You could also design an auto enrolment employee handbook and give out copies to all staff.
Staff that you don’t need to auto enrol
There are certain situations where you won’t have to auto-enrol your employee. They include:
- Staff member has already handed in their notice to leave, or you’ve given them their notice.
- They have evidence of their lifetime allowance protection. This could be a certificate from HMRC.
- You have already arranged for them a pension that meets the auto enrolment rules.
- They’re in a limited liability partnership.
- Your employee is from another EU member state and is on an EU cross-border pension scheme.
Of course, your staff can still ask to join the scheme—you just don’t have to auto-enrol them.
If you don’t already have a scheme in place
If you don’t have a suitable scheme in place, and don’t want to set up your own scheme, your staff can use the government-backed scheme NEST – National Employment Savings Trust. Head to their website for further details.
You (the employer), your staff, and the government must all contribute a minimum amount. The way the government does this is through tax relief.
As it currently stands, employees must pay 3% of their earnings into their pension. Employers pay 2% on top of this. These are the minimums. Both parties can pay more if they choose.
The minimum rises for both parties as of 6 April 2019. Staff will pay 5% and you will provide 3%.
Employer minimum contribution
Total minimum contribution
|From 6 April 2018||2%||3%||5%|
|From 6 April 2019||3%||5%||8%|
As an employer, you have a legal duty to make sure the right minimum contributions are being paid from 6 April 2019. If you don’t do this, you could receive a fine.
The Pensions Regulator states:
“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.”
There is more information on your duties as an employer and your ongoing responsibilities, on The Department for Work and Pensions website.
The Pensions Regulator also has useful guidance and tools for preparing for the contribution increases, along with an online contributions calculator which can be found here.
The recommendation is to start the process early, as it may take some time.
You will have notified your team of the staged contribution increases when they first were auto-enrolled, but it is good practice to keep staff informed on changes and you should let your staff know about the increases. The Pensions Regulator has an example letter template you could amend that shows the 2019 increases, or they also advise “Depending on what you have agreed with your pension scheme provider, they may also write to your staff or have letters that you can use.”
In light of April’s increases, workers now have three choices:
- Continue paying in at the new, higher, rate
- Opt out of a pension altogether
- Opt to continue paying in at the old rate.
Remember that you shouldn’t try to encourage or force staff to opt out.
You should provide a form if someone wants to opt out, and they should complete and return it to you. If they choose to opt out during the first month, they will get back whatever they paid into their pension pot. After the first month, payments stay in their pot.
If one of your staff does opt out—but they still meet the criteria—you must put them back into the scheme every three years. As with the first time, you should tell them all the points that are required when you auto enroll someone into a scheme (see bulleted list below).
You can delay enrolling someone into a pension scheme for up to 3 months from his or her start date.
You must tell them about the delay within one month. If they ask to join in the meantime, you must let them.
You should include an auto enrolment clause in employment contracts for your staff. This will show that you’re complying with the legislation. As for the contract wording for pension auto enrolment, you don’t need to go into the specifics of the pension scheme in the contract.
Once you auto-enrol someone into a scheme, you must tell them:
- The date you added them to the pension scheme.
- How tax relief will apply to them.
- How to opt out of the scheme if they want to.
- How much you will contribute and how much they must pay.
- The type of scheme.
- Who runs the scheme.
You can’t dismiss or discriminate against someone for being in a workplace pension scheme.
And as a DBA member, you have free access to an HR and employment law advice line provided by our partners, Croner. Call 0844 561 8133 to speak with an advisor and quote the DBA scheme number which can be accessed by logging into the DBA Members Area.