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Workplace Pension Scheme

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.

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 2022 in order to meet the standard quality test, a total minimum contribution of 8% of qualifying earnings (£6,240 - £50,270 in 2022/23, 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

Should you have any queries or would like further advice about meeting your Auto-Enrolment obligations, do not hesitate to contact Ashley Bellis or our other Auto-Enrolment specialists to the right of this page.