Every employer in the UK should now be automatically providing a workplace pension for eligible employees. The workplace pension provides every employee aged at least 22 but under state pension age, and that earns at least £10000 per year an opportunity to pay into a pension and to have their employer make contributions too.
Currently the contributions are 2% of qualifying earnings for employers, and 3% for employees. Of the employees contributions 2.4% is taken from the wages and 0.6% is paid by the government in the form of tax relief.
For example for every £100 your employee earns you will give them £2 in contributions. They will contribute £2.40 from their wages and receive £0.60 tax relief.
In April 2019 contributions are rising. Employers will be required to make contributions of 3% and employees will be required to make contributions of 5%. The employee contribution is made up of 4% from their wages and 1% in the form of tax relief.
For example for every £100 your employee earns you will give them £3 in contributions, and they will contribute £4 from their wages and receive £1 tax relief.
You will need to write to your employees to let them know about the changes to their pension scheme. Your pension provider should have a template you can customise to send out. Employees need to be made aware that their contributions will be increasing.
You will also need to ensure that the correct deductions are being made after April. Even if you are using a payroll software it is worth manually checking the contributions in the first week. The payroll software communicates with the pension providers’ software, and sometimes that communication needs to be refreshed when changes are applied.
Recap, what do I need to do?
You need to send a letter to all eligible employees explaining the rise in contributions.
Check with your payroll software provider, this should be updated automatically, however it is always worth double checking in the first pay period that includes the 6th April 2019.
If you process pensions manually make sure that contributions are updated in the first pay period that includes the 6th April 2019.