Amending regulations to extend the transitional periods for DC schemes
Employers are required, under auto enrolment laws, to make minimum contributions to a qualifying pension scheme with respect to their workers. One of the requirements for a defined contribution scheme to be a qualifying pension scheme is that at least certain minimum contributions need to be paid to it, as a percentage of ‘qualifying earnings’. ‘Qualifying earnings’ for this purpose include salary, commission, bonus, overtime, statutory maternity, paternity or adoption pay and statutory sick pay, of between £5,824 and £43,000 in 2016/17 terms. However, there are transitional periods in place to accommodate a phasing in of these minimum contributions (so during these periods, the minimum contribution levels are slightly lower)1.
In the Autumn Statement 2015, the Chancellor announced that the transitional periods would be changed to align with tax years to simplify administration. Regulations2 reflecting this change came into effect on 1 October 2016.
The minimum contribution levels and current and new transitional periods during which they are payable are set out below. For completeness we have also included the ‘full’ contribution levels under the Pensions Act 2008 which will be required from 6 April 2019.
|Minimum total contribution levels in the relevant pay reference period (as a % of qualifying earnings)||Previous transitional period during which contributions payable||New transitional period during which contributions payable|
|2% (of which the employer has to pay at least 1%)||From the employer’s staging date until 30 September 2017||From the employer’s staging date until 5 April 2018|
|5% (of which the employer has to pay at least 2%)||From 1 October 2017 to 30 September 2018||From 6 April 2018 to 5 April 2019|
|8% (of which the employer must pay at least 3%)||From 1 October 2018||From 6 April 2019|
Employers should ensure that their payroll systems are adjusted to accommodate the new periods and applicable contribution rates, as appropriate.
Pensions Regulator fines for non compliance are on the up and a reminder for smaller/micro employers
The Pensions Regulator’s second quarterly report on auto enrolment compliance and enforcement shows an overall increase in the use of the Regulator’s powers against employers in relation to auto enrolment breaches (for example, via notices obliging employers to comply or fixed penalty notices). The report also reveals that, so far, none of the appeals against the Regulator’s notices have succeeded (though there were 22 cases still ongoing at the end of June 2016).
With smaller and micro employers now reaching the dates from which the auto enrolment requirements apply to them, the Regulator’s statement accompanying its report focusses on these and urges them to engage with the process early to avoid risking a fine. It is worth noting that these sorts of employers will include those employing just a handful or even a single employee (for example a housekeeper or a nanny) so action should be taken as early as possible to assess if and how the requirements apply in these situations. We would be happy to assist in this regard, if required.