Auto enrolment contribution rates

Auto enrolment contribution rates

Didn't find your answer?

I have been unable to find an answer to this anywhere, but am sure this must be a common query... can anybody on here help?

We currently provide a 6% employer pension contribution, and employees can contribute whatever they want, some currently contribute nothing (this was the case before AE and continues now).

The current total minimum contribution is 1% (employees plus employers) and is rising to 5% total on 6/4/18. So far so good, as our employer contribution is 6% so more than enough.

However, on 6/4/19 the total contribution must rise to 8% (including 5% for the employer). So for all our employees who currently contribute less than 2% personally, does this mean they have to increase their contribution or simply opt out entirely?

If they do opt out, does this mean we have to stop the 6% employer contribution as well?

This looks like AE could actually make these employees worse off, as if they don't want to make a personal contribution then they end up opting out of whole thing and getting nothing instead of the current 6% the employer is providing.

If anybody else has encountered this issue I would very much like to hear your thoughts.

Many thanks

 

Replies (8)

Please login or register to join the discussion.

Euan's picture
By Euan MacLennan
28th Apr 2016 18:43

What an odd attitude

If any members of the pension scheme currently pay no employee contributions, the scheme is not AE compliant because they must contribute (at least) 1% from the staging date (3% from April 2018 and 5% from April 2019).  It may also not be AE compliant for other reasons.  I suggest that you consult a pensions adviser to establish if your current pension scheme is (or can be made) AE compliant.  If it is compliant, your employees will have no option but to contribute.  If the existing scheme is not compliant, you will have to find a separate AE compliant scheme and enrol all your employees into that.

Thanks (0)
Replying to Paul Crowley:
avatar
By BrianNicholls
29th Apr 2016 08:42

Incorrect

Euan MacLennan wrote:

If any members of the pension scheme currently pay no employee contributions, the scheme is not AE compliant because they must contribute (at least) 1% from the staging date (3% from April 2018 and 5% from April 2019). 

This is not correct. Employee does not have to contribute anything.

Thanks (0)
JCACE
By jcace
28th Apr 2016 19:07

Not AE Compliant

As Euan has siad, your existing scheme is not compliant with Auto Enrolment. It is possible to have an AE compliant scheme where the employees do not contribute, but only if the employer makes the full contribution. The minimum contribution requirements are 2% from staging date, of which at least 1% must be made by the employer, rising to 5% (of which at least 2% must be made by the employer) and then 8% (of hich at least 3% must be made by the employer). Your existing scheme does not have this built in at the moment. But Auto Enrolment is about more than just the contributions - it includes the automatic enrolment of eligible workers, the right to join, opt-in, leave or opt out of a scheme etc etc. As Euan suggests, you should consult a pensions adviser to see the best way ahead.

Thanks (0)
avatar
By robbie2016
03rd May 2016 14:28

I am pretty sure we are compliant at the moment, as the scheme we currently run is with a well known pension provider and we are in their specific auto enrolment scheme... we also had IFA advice when it was set up.
The current rates up until 5/4/18 are a minimum employer contribution of 1% and a total contribution of 2%. If the employer only puts in 1% then obviously the staff HAVE to put in 1% as well, or opt-out. We are putting in 6% so well above the total minimum contribution, so I think this is fine, which is the advice we were given when we set it up.
However, as my question suggests I just don't know what happens when we get to 6/4/19 as the total has to be 8%, meaning our employees will have to put in 2%. If they don't want to put in 2% then presumably they have to opt out, in which case they will lose the 6% from the employer as well.... or can we just keep paying this into their pension even if they have opted out?

Thanks (0)
Replying to robbie2016:
avatar
By facucvivas
05th May 2016 12:00

If you set up a compliant scheme and enrol all your eligible workers and then they all opt out, there is nothing to stop the company continuing with the 6% contribution of the current scheme. The 8% is irrelevant as they have opted out of the compliant scheme

Thanks (1)
avatar
By JWB
05th May 2016 12:01

The employer could increase it's contributions to 8%? Or the employee would have to pay the 2% difference or they would have to opt out. Yes you are quite right, if the employee didn't want to pay the 2% - then they would have to opt out and effectively take a 6% pay cut. I think you may need to check their employment contracts... Your hands are tied with AE but you do have a couple of years to plan for it ...

Thanks (0)
Replying to JWB:
avatar
By bluetone
05th May 2016 12:54

We have exactly the same situation at the company I work for. When you get to the 8% point if any of your employees don't want to contribute then they can opt out and you could decide to pay the 6% in to the auto enrolment pension scheme (but not under the auto enrolment process and you need to ask the pension scheme if this is allowed), or you could have a separate scheme which is not auto enrolment compliant and pay the 6% into that one, or you could agree to pay 6% directly to each person's own private pension scheme (but this would depend on how many schemes you could end up making payments to and could become an admin nightmare).

Also don't forget that the payment the employee makes is grossed up after payment and the 2% represents the grossed up amount so their contribution would be less than 2%.

The bottom line is if their contract of employment says they get 6% then unless you want to alter their contracts (another admin nightmare and everything else that comes with lowering pay) then you can continue to pay the contribution. The only choice is where do you pay the 6% if they opt out.

Thanks (1)
avatar
By psimonparsons
05th May 2016 22:37

You and your employees are perfectly entitled to have a 6% employer contribution scheme. It would not meet the qualifying conditions for AE from the date you indicate (so the employee would need to cease membership from a qualifying scheme) but continue with the 6% employer contribution arrangement! it's your choice, and sure that a pension scheme can support such an arrangement. The employee need not miss out of the employer contribution. Just be aware that at each triennial re enrolment point you will be obliged to auto enrol into an AE compliant arrangement (with relevant minimums) from which the employee can voluntary opt-out and you may choose to revert to he 6% only arrangement as a none AE compliant pension arrangement.

Just some clarifications. There is no employee minimum requirement for AE qualifying scheme. There are overall minimums of which the employer has a minimum. The employer can cover the overall minimums if they wish.

For the time being the scheme appears fully compliant. Only in April 2019 when the overall limit for an AE scheme is 8% (including tax relief) with 3% employer minimum.

So in 2019 you must by default either add 2% employer or 1.6% (making 2% with tax relief) employee contribution by default. The employee may either opt out / cease membership entirely, or choose to cease membership of an AE qualifying scheme and continue with the 6% employer only non AE compliant pension.

Thanks (0)