Minimum Contribution Increases (Phasing)
By law, minimum auto enrolment pension contributions are due to increase over time. This is known as phasing. The first increase took place last April at the start of the 2018/19 tax year. The second increase will take place on 6th April 2019.
On the 6th April 2018, the total minimum contribution increased from 2% to 5%. Employers are now required to contribute a minimum of 2%. Employees need to contribute the remaining 3%. Minimum contributions will undergo further increases on 6th April 2019, with the total minimum contribution rate increasing to 8%, representing a 3% employer and 5% employee contribution.
BrightPay 2018/19 and BrightPay 2019/20 can seamlessly handle the respective increases, with various options depending on the different scenarios.
- If 2% employer and 3% employee is currently being contributed to an employee’s pension pot, BrightPay will automatically uplift these workplace pension contributions to the minimum 3% employer and 5% employee from 6th April 2019, with no action required in BrightPay by the employer.
- The employer and employee may have decided to contribute the increased contributions from the duties start date (previously known as the staging date), instead of from the phased date. For example, they may already be contributing 3% employer and 5% employee. In this instance, no action is required and the contributions will continue as normal.
- There is also the scenario whereby more than the current minimum contributions but less than the 2019/20 minimum contributions is being contributed to the employee’s pension pot, e.g. 3% employer and 3% employee. In this instance, on 6th April 2019 BrightPay payroll will alert the employer that contributions are below the minimum and that it must be ‘fixed’. Employer’s will have the option to increase the contributions to be in line with the 2019/20 minimum pension contributions (in this example to 3% employer and 5% employee) or to increase the employer pension contribution, whereby the employer will be liable to pay the difference (in this example to 5% employer and 3% employee).
- There may also be the scenario whereby contribution rates are calculated by a fixed amount rather than on a percentage basis. In this instance, BrightPay will automatically detect if this fixed amount falls below the minimum pension requirements, with an alert for the employer to fix this as required.
Watch our video to see how the above scenarios worked in BrightPay 2018/19: