2 July 2012

Auto-enrolment Pensions - Snippet #4

How much do we have to contribute?
There are 3 basic contribution models of which the first one is the baseline. Here we are talking about the minimum contribution levels. Many employers already make higher contributions, and bearing in mind that this is benefitting your employees, don't just think how little you can get away with! (even though that may be the initial plan).

Option 1:Total contribution at least 8% of "qualifying earnings"
The employer must contribute at least 3% of this (but could choose more), with the employee having 4% deducted from their pay, with the remaining 1% coming from tax relief.
Qualifying earnings includes earnings in a band between £5,500 and £42,500 (roughly), and must include overtime, bonuses, statutory sick / maternity pay, etc..

Option 2: Total contribution at least 9% of "pensionable salary"
The employer must contribute at least 4% (but could choose more), with the employee having 4% deducted from pay, with 1% from tax relief.
Pensionable salary must be at least basic pay, but doesn't have to include variable pay like overtime and bonuses.

Option 3: Total contribution at 7% of all earnings
The employer must contribute at least 3% (but could choose more), with the employee having 3% deducted from pay, with 1% from tax relief.

And finally, although the minimum contribution levels are as above, they can be phased in. For example, if the 3% employer contribution model applies, until September 2017 an employer must contribute at least 1%, then until September 2018 it's 2%, up to the final 3% after that.

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