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Workplace Pension Scheme

Which pension scheme should you choose?

For those employers who already provide a pension scheme for some or all of their workers, the decision must be made whether they want to continue using this pension scheme to meet their duties for existing members (and how they will adapt this existing scheme if required). Employers must also decide how they plan to meet all of their new automatic enrolment responsibilities.

In order to make this decision, employers must fully understand the criteria for both the qualifying scheme and the automatic enrolment scheme and then be satisfied that their existing pension scheme meets (or can be amended to meet) these criteria.

Do not assume that as you have an existing workplace pension scheme that it will be Auto-Enrolment compliant!

An employer can certify that their scheme is a qualifying pension scheme for Auto-Enrolment if it passes any of the alternative quality tests based on the schemes usual pensionable pay definition.

Those employers without an existing pension provision will need to put an automatic enrolment scheme or a qualifying scheme in place with effect from their relevant staging date when the duties begin to apply.

In order to be an automatic enrolment scheme, there are three requirements that a pension scheme must meet:

  • Automatic enrolment criteria
  • Qualifying criteria
  • Minimum requirements

The 3 requirements above are relatively complicated and it is essential that employers get this right. For more information about the requirements of an eligible pension scheme you are strongly urged to contact Mitchell Charlesworth's Auto-Enrolment team below.

What is a ‘Qualifying Pension Scheme’?

A qualifying pension scheme can be used by an employer (as an alternative to NEST or equivalent - outlined below) to meet the new requirements as long as the scheme is a registered pension scheme that meets certain quality standards. It must be noted that these quality standards vary depending on the type of pension scheme involved, as follows:

Standard quality test

From April 2019 in order to meet the standard quality test, a total minimum contribution of 8% of qualifying earnings (£5,876 - £45,000 in 2017/18, including an employer contribution of at least 3%) will be needed in each relevant pay reference period.

What is NEST?

NEST stands for the National Employment Savings Trust which is a centralised, defined contribution occupational pension scheme which employers can choose to use to meet their duties under Auto-Enrolment. Any employer can choose to use NEST but it is particularly designed to be used by moderate to low earners and their employers.

NEST is similar to other defined contribution company pension schemes, however, there will be a limit on the contributions that can be paid and for the first 5 years of its operation it is not expected to allow transfers of funds in or out. There is also a slight difference regarding benefit options for those who decide to leave after a short period of membership. It should also be noted that in the event of a member’s death before retirement, the benefits will not be exempt from Inheritance Tax. There is also a maximum contribution that can be paid to NEST by and on behalf of each employee.

Alternative quality tests

An employer’s existing scheme can certify that their scheme is a qualifying scheme if it passes any of the following alternative quality tests based on the scheme’s usual pensionable pay definition:

Pensionable Pay: Basic Pay

Minimum Employer Contribution: 4%

Minimum Total Contribution (Gross): 9%

Pensionable Pay: At least 85% of total pay

Minimum Employer Contribution: 3%

Minimum Total Contribution (Gross): 8%

Pensionable Pay: Total Pay

Minimum Employer Contribution: 3%

Minimum Total Contribution (Gross): 7%

Phasing-in

Like the standard quality test, the minimum contributions under these alternative quality tests will be phased-in in the run up to October 2018:

Option 1: Only 'basic' pay is pensionable

Contribution Phasing Period*: Staging date - 5th April 2018

Minimum Employer Contribution: 2%

Minimum Total Contribution (Gross): 3%

Contribution Phasing Period*: 6th April 2018 - 5th April 2019

Minimum Employer Contribution: 3%

Minimum Total Contribution (Gross): 6%

Contribution Phasing Period*: 6th April 2019 onwards

Minimum Employer Contribution: 4%

Minimum Total Contribution (Gross): 9%

Option 2: At least 85% of total pay is pensionable

Contribution Phasing Period*: Staging date - 5th April 2018

Minimum Employer Contribution: 1%

Minimum Total Contribution (Gross): 2%

Contribution Phasing Period*: 6th April 2018 - 5th April 2019

Minimum Employer Contribution: 2%

Minimum Total Contribution (Gross): 5%

Contribution Phasing Period*: 6th April 2019 onwards

Minimum Employer Contribution: 3%

Minimum Total Contribution (Gross): 8%

Option 3: Total pay is pensionable

Contribution Phasing Period*: Staging date - 5th April 2018

Minimum Employer Contribution: 1%

Minimum Total Contribution (Gross): 2%

Contribution Phasing Period*: 6th April 2018 - 5th April 2019

Minimum Employer Contribution: 2%

Minimum Total Contribution (Gross): 5%

Contribution Phasing Period*: 6th April 2019

Minimum Employer Contribution: 3%

Minimum Total Contribution (Gross): 7%

*Changes subject to Parliamentary approval

Free Guides to Auto-Enrolment to Download, Print and Share:

The following guides have been co-written by our wealth management and payroll departments, specifically for employers, with the ultimate aim of ensuring that you start to prepare now to meet your duties under Auto-Enrolment and are ready to comply with the obligations when your staging date arrive.

Auto-Enrolmnent Services

Part 1: A Unified Solution for Employers

600.8 KB
The Workplace Pensions Reforms

Part 2: Auto-Enrolment - A Guide for Employers

486.7 KB

Further Information - Contact our Auto-Enrolment Team:

Should you have any queries about the details contained in this guide or would like further advice about meeting your Auto-Enrolment obligations, do not hesitate to contact our Auto-Enrolment specialists below.

  • Chartered Financial Planner

    0151 2552300
    Liverpool
  • Chartered Insurance Practitioner

    0151 2552300
    Liverpool
  • Director of Payroll

    0151 4237500
    Widnes
  • Payroll Manager

    0151 4237500
    Widnes