Phasing contribution increases to workplace pension schemes

As you know, by law, all auto enrolment workplace pension schemes must reach a minimum contribution level.

The first increases must be in place by 6 April 2018, with a further increase planned so all schemes are making the minimum contributions by April 2019.

Many employers have chosen the statutory phasing timeline which means the first phase of increases is effective from 6 April 2018, with contribution increases as shown in the table below.

Contribution basis
Date7% of all earnings*8% of pensionable salary, provided 85% of total payroll* is pensionable9% of pensionable salary8% of qualifying earnings
Total must be at leastEmployer must contributeTotal must be at leastEmployer must contributeTotal must be at leastEmployer must contributeTotal must be at leastEmployer must contribute
Staging date to 5 Apr 2018 2% 1% 2% 1% 3% 2% 2% 1%
6 Apr 2018 to 5 Apr 2019 5% 2% 5% 2% 6% 3% 5% 2%
6 Apr 2019 onwards 7% 3% 8% 3% 9% 4% 8% 3%

* Earnings must include everything that’s included in the definition of qualifying earnings.

Other employers have chosen a customised approach, following a different timeline and in some cases, different contribution increases too.

As you’re aware, your client could be fined if contributions aren’t increased in line with the legislation.  

We’ve recently written to those employers with schemes due to make a phasing increase to contributions between 1 April and 1 July 2018.   

We’re directing employers to our employer website where we’ve provided additional information to support them, along with the workplace marketing material they'll need to raise awareness among their employees.

As you know, The Pensions Regulator's rules state very clearly that employers must not induce members to pay contributions below the minimum. It's important that employees make their own decisions about the level of contributions they want to make.

We've included information to help employers deal with members who don't want to increase their contributions should they want to allow this in their scheme. We've also directed them to The Pensions Regulator detailed guidance for employers.

We’re writing to scheme members to let them know this increase is coming. We’ll also highlight the benefits of saving for their retirement through their employer's pension scheme. Here are examples of the letters we’ll send.

We’ve also made posters, postcards and an article template available to employers to help raise awareness of the change.

Need more information?

You can find more information about phasing and the employer duties on The Pensions Regulator website.

If you have any further questions please get in touch.

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London EC3V 0RL.