You need to pay the correct contributions on time to your staff pension scheme. If you don’t, you risk being fined by the regulator.
- You need to deduct contributions from your staff’s salaries and pay these and your contributions over to the scheme on time and accurately.
- After you have set up your scheme, if you’re unsure what to pay and when, contact your pension scheme provider or trustees.
- If you fail to contribute to your staff pension scheme correctly or on time you risk being fined by the regulator.
- There are specific records and payment information you must keep.
How much you must pay
The amount you must contribute to the pension scheme is determined by the scheme’s rules. However, if you’re using the scheme for automatic enrolment there are minimum contributions you must pay.
The minimum contributions that you must pay into your staff’s pension scheme are shown in the table below – they’re currently a total contribution of 5% with at least 2% employer contribution.
Minimum contributions are being introduced gradually over time. You will usually pay pension scheme contributions either as a fixed amount or based on a percentage of earnings.
|Date||Employer minimum contribution||Total minimum contribution|
|Old rates, up until 5 April 2018||1%||2% (including 1% staff contribution)|
|Currently, from 6 April 2018 to 5 April 2019||2%||5% (including 3% staff contribution)|
|6 April 2019 onwards||3%||8% (including 5% staff contribution)
Your minimum employer contribution
Pension contributions are usually expressed as a fixed sum or a percentage of earnings. If they’re expressed as a percentage you will need to confirm salaries with your pension provider / trustees regularly as necessary from time to time.
You also need to decide what elements of staff pay are used to calculate pension contributions, subject to any overriding legislative requirements, such as in relation to automatic enrolment. You may decide that only basic pay is pensionable but not bonus or overtime payments. Let your pension scheme know what you decide.
If your system’s automated, your payroll system or provider needs to calculate contributions and make the correct deductions from staff pay. You should also make sure your payroll system is compatible with the chosen pension scheme. If you’re unsure, check your payroll software or contact your payroll provider.
Remember, you need to tell payroll what rate of contribution is due and what earnings to use to calculate contributions.
When you must pay your contributions
You need to pay your contributions to your staff pension scheme on time. This includes calculating and deducting contributions from your staff's salaries. You must agree the due dates for paying contributions to the scheme with your trustee or provider.
However the law requires that when you deduct contributions from your staff's pay you must pay these to your staff pension scheme no later than the 22nd day (19th if you pay by cheque) of the next month.
There are special rules for the first deduction of contributions on automatic enrolment under the Pensions Act 2008.
You risk being fined by the regulator if you don’t pay on time.
You may agree an earlier date to pay your employer contributions with your trustees or administrators. However, it’s easier if you pay your contributions on the same day as your staff contributions.
Which tax relief method is best for your staff?
If you employ staff who don't pay income tax, check that the scheme uses 'relief at source' to add tax relief from the government.
Tax relief means that some of the money from your staff members' pay that would have gone to the government as tax goes into their pension instead.
There are two ways that staff can get tax relief on what they pay into their pension. A scheme can only use one method for all your staff and this will affect your lower or higher paid staff in different ways.
One method is 'relief at source' and the other is 'net pay arrangements'. Some providers use different names. You can tell if it's relief at source if the pension provider has to claim the tax relief from HMRC. If you need to calculate tax on the pay that is left after you’ve paid into the pension, then the scheme uses net pay arrangements.
Staff who don't pay income tax
If you have staff who don't pay income tax they will only get tax relief if you choose a scheme that uses relief at source. If you choose a scheme that uses net pay arrangements, these staff will not get tax relief and will pay 20% more for their pension.
Some schemes that use net pay arrangement may have lower member charges for your staff so you will need to consider this carefully.
If you use salary sacrifice to manage pension contributions, staff who don’t pay income tax won’t get tax relief whichever tax relief method your scheme uses.
Staff who pay tax
If your staff pay income tax they will get tax relief whichever scheme you choose. However, if you have higher and additional rate taxpayers and your scheme uses relief at source, they will need to claim their full tax relief by completing a tax self assessment.
Which schemes use each tax relief method*
1 Relief at source is the default, but some employers may have chosen to use NPA instead.
2 Large employers may be using the trust based scheme, which uses NPA (the GPP uses RAS).
You can find information about other schemes for automatic enrolment on the following website:
How are staff contributions calculated with each tax relief method?
|Relief at source|
|Staff contribution is 80 pence in the pound, after tax has been deducted (i.e. 2.4% of qualifying earnings is taken from net pay). The pension provider will claim 20 pence in the pound from HRMC and add to the pension pot.
|Net pay arrangements|
|Staff contribution is taken gross (£1 for £1), so no tax is deducted from the employee's pension contribution (i.e. 3% of qualifying earnings is taken from gross pay).|
Keeping payment information and records
Incorrect or out-of-date information is the main cause of payment failure and disputes between an employer and their scheme provider or trustees.
You must keep information and records about what contributions you pay to your pension scheme for six years (in most cases). This will help you ensure the correct contributions are paid and provide evidence if there’s a dispute.
Records you should keep include:
- staff gross earnings
- staff and employer pension scheme contributions due to be paid (and if different the actual amounts paid)
You need to keep information on contributions and membership up to date and communicate any changes to your pension scheme provider or trustees.
As part of your normal day-to-day administration arrangements it’s good practice to provide the following ‘payment information’ to your scheme:
- any changes to a member’s earnings or contribution entitlement
- details of members leaving or joining the scheme
Your pension scheme provider or trustees need this payment information to meet their duties such as monitoring contributions and reporting material payment failures to the regulator.
You should agree a process for this when you set up the scheme. This may include you giving updated earnings information at the same time as you pay contributions across to the scheme.
Providers or trustees may ask you for additional payment information which you must provide within seven working days. You risk being fined by the regulator if you don’t provide this information on time.
Pension fund limits
There are limits to the amount which can be held in a pension fund and the amount that can be contributed to it each year for a member without the imposition of certain tax charges.
Go to understanding the annual allowance for pension schemes on HM Revenue and Customs website.
If you’re unsure what to pay and when, contact your pension scheme provider or trustees.
Defined benefit funding
If you run a defined benefit (DB) scheme, you need to be aware that most schemes providing any defined benefits need to meet a statutory funding objective, which assesses the required levels of funding for a scheme.
As an employer, you’ll need to work closely with trustees to ensure that your scheme meets these funding requirements.
In particular, you’ll have to agree with the trustees:
- a statement of funding principles
- a schedule of contributions consistent with these principles
Where the statutory funding objective is not met, you have to agree on a recovery plan setting out the steps that will be taken to put things right.
For more information go to funding your defined benefit scheme.