Auto-Enrolment Pension Schemes – Increases & Tax Relief

AUTO-ENROLMENT PENSION SCHEMES – INCREASES AND TAX RELIEF

From 6th April 2019 the minimum contribution levels will rise for both employee and employer. We want to make you aware of these changes in good time so that you can plan for those that may affect your business or instruct us to take action on your behalf. The new contribution rates on pensionable earnings are:

• Employee 5%
• Employer 3%
• Total contribution 8%

We will check your payroll in April and apply these increases where applicable. Please also ensure your employees are aware of these changes. Those employers that are self-administering their pension scheme will need to ensure that they update their scheme with these mandatory increases. We will need to be informed prior to running your payroll about any different contribution rates above the legal minimum so that it can be applied to your payroll and the individual(s) concerned. Please also be aware that when using the Qualifying Earnings Band for Pensionable Pay the Lower Earnings Limit (LEL) increases to £512 per month from April.

PENSION TAX RELIEF

There is some confusion on the terms used when referring to pension contributions made by employees and tax relief. These terms only apply when a scheme is registered with HMRC for tax relief and are:
• Tax Relief at Source – this is the relief claimed by the pension scheme after the contribution is made from the net pay. This means PAYE income tax is paid on the full amount of the employees pay.
• Net Pay – this is where tax relief is given to the employee when they are paid. This means PAYE income tax is calculated after the pension contribution has been deducted from pay. The pension scheme does not claim any tax back from HMRC.
• Salary Sacrifice – No relief is required as the employee is receiving less pay in return for the pension contributions
There is no relief from National Insurance on the amount contributed.

If you are concerned about these changes or need more information then please speak to your accountant or a member of the payroll team to discuss your concerns in more detail.