What if your employee wants to stay in the pension scheme, but doesn’t want to pay the balance to meet the legal minimum contribution?

An employee can decide that they’d like to reduce their pension contributions so as they’re not meeting the legal minimum contributions. This means the employee will no longer be classed as ‘eligible’ for auto-enrolment’.

It should be their choice to pay below the minimum levels, and their employer is legally not allowed to suggest, encourage or induce them to do so.

Employers can choose to support the employee’s decision to reduce their pension contributions by following our guide,’Paying below the minimum contribution levels’.

Reducing their pension contributions means:

• the employee should remain in the pension scheme as an active member.
• you don’t have to continue paying pension contributions for them – but you can if you want to and can choose how much you’ll pay.
• you may need to re-enrol your employee into the pension scheme every 3 years (sometimes sooner). They’ll then have the opportunity again to see if they’d like to contribute to meet the total legal minimum contributions.
• the employee can decide to join the pension scheme and pay towards the total minimum contributions at any point in the future. They’ll just need to let their employer know in writing. This can be a signed letter or email, if it includes a statement to say it has come from them.

If you choose not to enable your employees to pay below the legal minimum contributions, they can opt out and pay pension contributions directly into their pension pot by Direct Debit. They’ll still benefit from the tax relief on their payments, and you won’t need to contribute. Your employee should be directed to our website if they’d like to set this up.

There is no minimum contribution level for employees, so if the employer chooses to pay the full total minimum contribution level, then the employee could choose not to contribute.

However, even if the employee increases their contribution, the employer must still meet the minimum employer contribution.

Tax relief on pension contributions

There can be tax implications to this for both the employer and employee. Employees should be aware of the annual allowance – the maximum amount that can be paid into their pension with tax relief. Read more about this on our website.

To do this you can add the employee to a new worker group with higher rates of employee and employer contribution amounts.

Additional contributions can be added to the next file that’s uploaded – simply alter the amount that needs to be increased.

If your employee wants to set up regular additional contributions, they’ll need to follow the instructions on our website to set up a Direct Debit.

Setting up your worker group

If you’re using salary sacrifice, you should set up a worker group with just an employer contribution, making sure this meets the total minimum contribution level. As you’re paying pension contributions on behalf of your employees, we wouldn’t expect to see an employee pension contribution.  For more help with this, please see our ‘Quick guide to Online Services’.

Salary sacrifice must not take the employee’s salary below the minimum wage. For more information please see HMRC guidance on salary sacrifice.

An employee can opt out of the scheme once they’ve been auto-enrolled and we’ve sent them their joiner pack. In the pack we explain how to opt out.

Once the member has opted out, no further contributions should be deducted from their pay. As long as the member has opted out within the first calendar month, they may be eligible for an opt-out refund of their previous contributions.

Please note that employers with at least 50 employees with a DC pension scheme, are legally required to consult with members if they’re making changes that decrease employer contributions.

You can stay up to date by visiting The Pensions Regulator’s website.

• basic salary
• overtime
• bonuses
• commission
• statutory payments such as maternity and paternity or sick pay.

You might also see this referred to as ‘pensionable salary’.

What are the pensionable earnings when the qualifying earnings basis is used?

If an employer has chosen to use the qualifying earnings basis to work out pension contributions, the pensionable earnings is based on the amount between the upper and lower level earning thresholds. You might also see this called ‘banded earnings’.

For example, if an employee’s monthly earnings are £5,000, the lower earnings threshold of £520 (*for the tax year) is deducted and any earnings over the upper earnings threshold of £4,189 are ignored. So, for this example the pensionable earnings on which pension contributions should be based is £3,669.

*current tax year

What if the employee’s monthly earnings are below the upper earnings threshold?

If for example, an employee earned £3,000 a month instead, only the lower earnings threshold of £520 would be ignored from their monthly earnings. This is because their earnings are below the upper earnings threshold. For this example, the earnings on which pension contributions should be based is £2,480.

What are the pensionable earnings when the pensionable earnings basis is used? 

If an employer uses the pensionable earnings basis to work out members pension contributions, the earnings thresholds don’t apply. Pension contributions are based on earnings that normally include salary or wages, but may exclude variable amounts such as commissions, bonuses and overtime. At a minimum this should include basic pay unless the employer has chosen to base calculations on total earnings. If total earnings are used, all elements of pay should be included in pension contribution calculations.

What are the pensionable earnings when the total earnings basis is used? 

If an employer has chosen to use total earnings basis to work out pension contributions, all elements of pay should be included.

For more information, take a look at The Pensions Regulator’s website.