QUESTION: I auto-enrolled my staff into an auto-enrolment qualifying workplace pension in the middle of last year and recently I received correspondence that contributions are changing. What are my obligations?
ANSWER: As you are aware, and to encourage more people to save in pension schemes, the government has placed greater responsibility on employers to provide access to pension provision. Up until October 2012 there was no requirement for an employer to pay employer contributions into a scheme.
As part of the automatic enrolment process, employers make contributions to the pension scheme for eligible jobholders. All businesses will need to contribute at least three per cent on the ‘qualifying pensionable earnings’ for eligible jobholders.
However, to help employers adjust, compulsory contributions will be phased in. These minimum contribution amounts are required to gradually increase at set times.
Beginning on April 6 this year, employers are required to increase the amount of their contributions into their automatic enrolment pension. Staff members will have to make up whatever shortfall remains of the new total minimum contribution. The minimum contribution you make into your staff’s automatic enrolment pension increases from one per cent to two per cent of qualifying earnings. Members of staff will have to pay the shortfall of three per cent.
The contribution levels continue to rise until the employer is paying a minimum of three per cent towards the pension and the total minimum contribution reaches eight per cent - with the member of staff making up the rest. If the employer pays the same as the minimum total contribution then the member of staff will not need to pay any contributions, unless the scheme rules require a contribution.
Both the employer and staff member can choose to contribute greater amounts to the pension if they wish. If the employer contributes more than their required minimum amount - but less than the total minimum amount - then the staff member only needs to make up the shortfall between the total minimum and the employer contribution.
As an employer you can choose to pay the total minimum contribution, this may mean staff do not have to pay at all, unless the scheme’s rules say they have to make contributions.
These minimum percentages apply to qualifying earnings, what an employee earns over a minimum amount (currently £5,876) up to a maximum limit (currently £45,000).
Remember as circumstances change all employees should be assessed each payday. Every worker who meets the eligibility criteria must be enrolled into a workplace pension if they are aged 22 or over, are under State Pension age, earn more than £10,000 a year and work in the UK.
These minimum contribution rates are set to increase again from April 2019, the minimum contribution due at that date will be eight per cent with a minimum of three per cent from employer and the shortfall payable by the employee.
:: Feargal McCormack (f.mccormack@pkffpm.com) is managing partner of PKF-FPM (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept liability for any direct or indirect loss arising reliance placed on replies.
