Minimum pension contributions are increasing!

February 20, 2018

Over the next two tax years starting on the 6th April 2018, the statutory minimum pension contributions are increasing.

If you have adopted a pension scheme that supports the statutory minimum phased contributions you need to be aware of these changes, as your nanny will see their take home pay reduce as their pension contributions treble from 1% to 3% and the employer pension contributions costs double from 1% to 2% in the 1st of the phased increases.

If you have a “net pay” arrangement with your nanny that incorpaorates the cost of pension contributions for both the employee and employer then the “total combined” pension contributions could increase your cost of hiring a nanny quite considerably, with pension contrubtions increasing from an overall 2% to 5% in the 1st phase of increases, then to 8% in the 2nd phase of the increases.

Date effective fromEmployer minimum contributionEmployee minimum contributionTotal combined contributions
6 April 20182%3%5%
6 April 20193%5%8%

Please note that the percentages quoted in the table above do not take into account tax relief as this is dependant on your pension provider and type of tax relief that is operated.

Should you inform your employee of the increases?

When a staff member is first automatically enrolled, the statutory enrolment letter they receive from the employer should have set out how contribution levels will increase over time.

There are no additional duties under automatic enrolment for employers to advise staff members about the increases, although they may choose to do so to help minimise queries, or reduce the risk of members leaving their pension schemes.

Some pension providers may offer a template letter you can use to inform your staff member(s) of the increases or some pension providers may issue automatic communcations to all active scheme members reminding them of the impending increases. Our advice is to check with your pension provider what if any support or communications they offer on this matter.