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Autoenrolment for employees 4% or 5%

Autoenrolment for employees is it 4% x total earnings or 5% x total earnings

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My understanding was that from April employee contributions for AR would be 4% x earnings plus 1% from the government.

However I have been told that if you are using total earnings (not qualifying earnings) then it can be 4% gross .. so 3.2% from the employee and 0.8% from Government; is this correct?



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24th Apr 2019 17:13

No, rubbish.

It's 5% before tax relief. How the relief is calculated on the payroll affects the deduction made from the gross pay; that is, whether you're deducting from net pay or gross.

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By Matrix
24th Apr 2019 17:32

I have no idea what you mean by “from the government”.

The minimum is 8% on qualifying earnings. Which is usually 5% employee and 3% employer contributions.

If the contributions are out of net pay then the pension fund reclaims basic rate tax. As Lion says the 5% is out of gross pay.

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24th Apr 2019 17:33

"Total earnings mean all earnings are classed as pensionable and contributions will be calculated from the first pound earned.

For a worker earning basic pay of £20,000 plus an annual bonus of £5000, the amount we would calculate their pension contributions on would be the full £25,000.

Please note: you can choose to calculate contributions in a way that meets the requirements of three ‘sets’ described in the legislation.

See The Pension Regulator’s guidance on certification of basic earnings.

Set Auto enrolment in 5 easy steps - Step 1

A total minimum contribution of at least 9% of BASIC EARNINGS (at least 4% of which must be the employer’s contribution), or

Set workplace-pensions-2

A total minimum contribution of at least 8% of BASIC EARNINGS (at least 3% of which must be the employer’s contribution), provided that the BASIC EARNINGS constitutes at least 85% of the TOTAL earnings (the ratio of BASIC EARNINGS pensionable pay to earnings can be calculated as an average at scheme level), or
Set workplace-pensions-3

A total minimum contribution of at least 7% of TOTAL earnings (at least 3% of which must be the employer’s contribution) provided that all earnings are pensionable."

It appears if contributions are based on total earnings the percentages required are lower but if on qualifying earnings the percentages higher, but I am no expert on these schemes.

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24th Apr 2019 17:54

I'm not sure whether I stand corrected or not.

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to lionofludesch
24th Apr 2019 18:33

Sort of.

It appears that where contributions are calculated on total earnings rather than qualifying earnings the percentages in total needing paid (EE+ER) may be lower.

So in the link we seem to have one option with a 7% total being ER 3%, EE 3.2%, HMG 0.8%

Frankly I do not know a lot about this but had vaguely heard about the different approaches possible to comply.

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