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Minimum auto enrolment (AE) contributions are set to increase with effect from an employee’s first pay day on or after 6 April 2018. These increases were originally due to take effect from October 2017, but were delayed by George Osborne in his 2015 Autumn Budget.
The minimum total contribution under AE increases from 2% to 5% of qualifying earnings, of which the minimum employer’s share goes up from 1% to 2%.
The main AE minimum contributions are based on qualifying earnings, that is total pay between a lower threshold of £113 a week or £490 a month and an upper threshold of £866 a week or £3,750 a month (2017/18 tax year – see below for expected 2018/19). Recognised alternatives to qualifying earnings are basic pay and total earnings and the complete range of minimum contributions from 6 April is detailed in Table 1.
Table 1. Minimum contributions associated with different earnings
The final qualifying earnings thresholds for 2018/19 will shortly be published by Parliament but we know the proposed levels are £116 a week or £503 a month for the lower threshold and £892 a week or £3,863 a month for the upper threshold. The earnings trigger for the start of an employee’s enrolment remains unchanged at £192 a week or £833 a month.
Please note the minimum contributions set out above are only applicable until 5 April 2019. Under the phasing of minimum contributions, they will increase again on 6 April 2019 to their full level. Details will be set out in a future briefing.
Schemes with contributions already above the new AE minimum do not need to make any changes unless the employer’s contribution is currently below the new minimum employer’s share in which case an increase in employer contribution will be necessary.
In December 2017, the Department for Work and Pensions (DWP) published its report on the review of auto enrolment entitled ‘Maintaining the Momentum’. The four major recommendations emanating from this were:
Consultation will be required, together with legislative changes, but the Government’s intention is to implement the recommendations with effect from the mid-2020s. Despite not announcing any change in the contributions levels at this stage, the Government did announce that it will monitor the impact of the increases in minimum contributions in 2018 and 2019, following which discussions on future contribution rates may take place. In addition, the review announced that: