Ask the Expert: How to prepare for UK auto-enrolment pension increases Ask the Expert: How to prepare for UK auto-enrolment pension increases

Ask the Expert: How to prepare for UK auto-enrolment pension increases
15 Mar 2018

Q. We know that UK auto-enrolment minimum percentages increase in April 2018 and so were wondering if you have any top tips to help us prepare for the situation?

 

A. My top tip is to ascertain the type of defined contributions (DC) pension scheme you have at your workplace as each scheme will have different minimum percentage increases. I explained what these different kinds of schemes were in my last article.

Be aware though that there will be two lots of minimum contribution increases (phasing) during 2018, and again in 2019. Let’s look at 2018 first and discuss some of the things you will need to take into consideration when preparing for them:

  1. Be aware of deadline changes

Minimum contributions were originally due to rise on 1 October 2017, and again on 1 October 2018. But these rises were increase by six months in the 2015 Autumn Statement and aligned with the start of the tax year instead. As a result, for 2018, the effective date for rises is now 6 April 2018 (which brings consequences in and of itself).

  1. Check scheme rules

The importance of adhering to the pension scheme’s rules cannot be overstated. If the scheme rules say the phasing of contributions should have taken place on 1 October 2017, this is the date it should have happened.

But in all likelihood, scheme rules will be aligned to the prevailing statutory rates. This means that contribution phasing occurs when legislation dictates the increases should happen, the first one being 6 April 2018.

  1. Determine whether proration is required

Unless your pay reference periods are aligned with tax periods, there is the very real chance that 6 April 2018 will not be the first day of the pay reference period. Therefore, a monthly payroll covering 1-30 April 2018 would imply that one set of minimum contributions applies up to 5 April, while a second set of increased contributions would apply from 6-30 April.

It is your scheme rules that determine whether or not proration is required, so please check with your pension provider. The Pensions Regulator (TPR) has recognised this situation and suggests the payroll and pensions industries adopt a more common and simplified approach, which centres on the payday. This means that if payday is on or after 6 April 2018, the increased minimum contribution levels would apply across the whole period.

But it still makes sense to check your scheme rules and what your organisation wants. If the rules shed no light on the subject, it would, in theory, be easier to deal with the whole period at the increased percentage rate, but the organisation may have other ideas.

  1. Establish how your payroll software can help

Last but not least, you will need to consider the functionality of your payroll software. If proration is required, it is important to establish whether your software can do it automatically or whether you will have to override system-generated values. You will also need to know if your software can automatically increase contributions or if you have to enter these values manually.

While invaluable, software is, unfortunately, only as good as the information entered by its users.

In summary

Phasing, or increasing contributions, will not happen magically, so preparation is key. Therefore, in summary:

  1. Do not forget that contribution increases will take place in both 2018 and 2019
  2. Keep in mind the date when these changes come into effect, that is 6 April 2018 and 6 April 2019
  3. Review your scheme rules
  4. Evaluate whether proration will be necessary
  5. Check the functionality of your payroll software
  6. Have a look at dedicated guidance from the TPR.

Following a number of questions about the implications of the forthcoming minimum percentages increase for workers, I will explore some of the pertinent issues in my next article.

 Ian Holloway

Ian Holloway is head of legislation and compliance at Cintra HR and Payroll Services. He has been in the payroll profession for over 30 years, processing payrolls large and small from organisations across all sectors until 2011 when he started helping to educate the profession by means of course material, newsletters and face-to-face presentations.

 

Q. We know that UK auto-enrolment minimum percentages increase in April 2018 and so were wondering if you have any top tips to help us prepare for the situation?

 

A. My top tip is to ascertain the type of defined contributions (DC) pension scheme you have at your workplace as each scheme will have different minimum percentage increases. I explained what these different kinds of schemes were in my last article.

Be aware though that there will be two lots of minimum contribution increases (phasing) during 2018, and again in 2019. Let’s look at 2018 first and discuss some of the things you will need to take into consideration when preparing for them:

  1. Be aware of deadline changes

Minimum contributions were originally due to rise on 1 October 2017, and again on 1 October 2018. But these rises were increase by six months in the 2015 Autumn Statement and aligned with the start of the tax year instead. As a result, for 2018, the effective date for rises is now 6 April 2018 (which brings consequences in and of itself).

  1. Check scheme rules

The importance of adhering to the pension scheme’s rules cannot be overstated. If the scheme rules say the phasing of contributions should have taken place on 1 October 2017, this is the date it should have happened.

But in all likelihood, scheme rules will be aligned to the prevailing statutory rates. This means that contribution phasing occurs when legislation dictates the increases should happen, the first one being 6 April 2018.

  1. Determine whether proration is required

Unless your pay reference periods are aligned with tax periods, there is the very real chance that 6 April 2018 will not be the first day of the pay reference period. Therefore, a monthly payroll covering 1-30 April 2018 would imply that one set of minimum contributions applies up to 5 April, while a second set of increased contributions would apply from 6-30 April.

It is your scheme rules that determine whether or not proration is required, so please check with your pension provider. The Pensions Regulator (TPR) has recognised this situation and suggests the payroll and pensions industries adopt a more common and simplified approach, which centres on the payday. This means that if payday is on or after 6 April 2018, the increased minimum contribution levels would apply across the whole period.

But it still makes sense to check your scheme rules and what your organisation wants. If the rules shed no light on the subject, it would, in theory, be easier to deal with the whole period at the increased percentage rate, but the organisation may have other ideas.

  1. Establish how your payroll software can help

Last but not least, you will need to consider the functionality of your payroll software. If proration is required, it is important to establish whether your software can do it automatically or whether you will have to override system-generated values. You will also need to know if your software can automatically increase contributions or if you have to enter these values manually.

While invaluable, software is, unfortunately, only as good as the information entered by its users.

In summary

Phasing, or increasing contributions, will not happen magically, so preparation is key. Therefore, in summary:

  1. Do not forget that contribution increases will take place in both 2018 and 2019
  2. Keep in mind the date when these changes come into effect, that is 6 April 2018 and 6 April 2019
  3. Review your scheme rules
  4. Evaluate whether proration will be necessary
  5. Check the functionality of your payroll software
  6. Have a look at dedicated guidance from the TPR.

Following a number of questions about the implications of the forthcoming minimum percentages increase for workers, I will explore some of the pertinent issues in my next article.

 Ian Holloway

Ian Holloway is head of legislation and compliance at Cintra HR and Payroll Services. He has been in the payroll profession for over 30 years, processing payrolls large and small from organisations across all sectors until 2011 when he started helping to educate the profession by means of course material, newsletters and face-to-face presentations.

 

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