Increase in Compulsory Pension contributions is coming!

  • by Carole Jordan
  • 01 Sep, 2017

Employers need to budget for increases from April 2018 in the compulsory pension contribution for their employees.  Now is the time to plan for this.

How will Compulsory Pension contribution rates change?

As an employer you may already be working with Auto Enrolment and paying compulsory pension contributions for your employees.  If this is the first you’re hearing about it I suggest you take a look at our Auto Enrolment knowledgebase in case you are in danger of incurring penalties for non-compliance.

You and your employees currently contribute at least 1% each to their pension scheme. From 6th April 2018 this will increase; you will be expected to pay at least 2% and your employees will be expected to pay the balance up to 3%. The total minimum contribution must be 5%.

Contribution levels based on gross earnings excluding bonus, overtime, commission or allowances

If your scheme is based on this amount your minimum total contribution will be 6% from April 2018 split 3% each between staff and you the employer. The percentage is higher because you are using a lower amount on which to calculate the contribution.

How can you be prepared for this increase to Compulsory Pension rates?

You should include this increase in your staff reward planning and budget for next year. it is possible for both employers and employees to pay more than the minimum so thinking about how best to structure your rewards to your staff should underlie this decision.

Pension contributions can be very tax effective for both parties so consider this too when making your decisions.

The next step

Be aware that there is an increase to a total minimum contribution of 8% from April 2019 and keep this in mind when making your plans. This is split 3% employer, 5% staff contribution. At these levels you will be facing more significant costs than you may now be incurring.

See the Pensions Regulator website for further advice on rates.

If you're looking for more help and advice with Auto Enrolment then check out our series of blogs on this topic - Auto Enrolment Knowledgebase

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