Your IndustryJun 13 2013

Minimum contributions and employer staging dates

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There are three tiered options for minimum contribution levels, which depend on the employer’s definition of ‘pensionable earnings’.

Pensionable earnings are defined by each pension scheme and what is included or not will vary, but would typically include basic pay, other variable remuneration and benefits-in-kind. Payments not included could include those made in lieu of holiday, for example.

For each scheme the pensionable earnings are used to define contributions and benefits, but the specifics will need to be fully checked and understood in each case.

For each of the three options for contribution levels there is a minimum total contribution, which includes a minimum employer contribution. The jobholder must make up any difference between the employer contribution and the total contribution required.

The three options are:

1) Tier one: Where ‘pensionable earnings’ are at least equal to basic pay, the initial minimum total contribution will be 3 per cent, of which 2 per cent must come from the employer. This will increase to 6 per cent (3 per cent employer) in October 2017; and 9 per cent (4 per cent employer) in October 2018.

2) Tier two: Where aggregate pensionable earnings are at least 85 per cent of total earnings, the minimum initial total contribution will be 2 per cent (1 per cent employer). This will increase to 5 per cent (2 per cent employer) in October 2017; and 8 per cent (3 per cent employer) in October 2018.

3) Tier three: Where all earnings are pensionable earnings, the minimum initial total contribution will be 2 per cent (1 per cent employer). This will increase to 5 per cent (2 per cent employer) in October 2017; and 7 per cent (3 per cent employer) in October 2018.

To ease the burden on employers, auto-enrolment is being introduced in stages up until 2018, beginning with the largest companies and ending with the smallest. Every employer is given a staging date – the point at which their automatic enrolment duties begin. This date is based on their PAYE scheme size at 1 April 2012.

Employers can postpone the date on which they assess employees for automatic enrolment for a maximum of three months. This is known as ‘postponement’ or a ‘waiting period’, but they cannot push back their staging date. As a minimum all employees have to be able to opt in from the staging date.

Staging dates began in October 2012 and run up to April 2017, or February 2018 for a new employer.

Employers can find out their exact staging date by inputting their PAYE reference into the Pension Regulator’s staging date calculator at: http://www.thepensionsregulator.gov.uk/employers/tools/staging-date.aspx