What qualifies as a workplace pension for Auto Enrolment?
Workplace pensions must meet certain Government standards. The scheme can be either a Defined Benefit scheme or a Defined Contribution scheme. This article deals with Defined Contribution schemes.
- Use the current pension scheme, as long as it qualifies
- Amend their current scheme to meet the qualifying criteria
- Set up a new pension scheme which does meet the qualifying criteria, and/or
- Use NEST (the National Employment Savings Trust)
- Use a combination of these options for different sectors of their workforce
Current pension schemes can include both occupational pension schemes where the administration is carried out by the employer and personal pension schemes, whether administered as a group scheme or on an individual basis.
The key factors for any pension that will be used as a workplace pension are that the employer must collect and account for all contributions due, having satisfied themselves that the qualifying criteria has been and continues to be met.
The qualifying criteria for eligible pension schemes are intended to be straightforward, these are summarised below:
- The scheme must be tax registered in the United Kingdom.
- Schemes that are administered outside the European Economic Area cannot be used for automatic enrolment
- The scheme must require minimum contributions based on qualifying earnings that are between £5,668 and £41,450 (2013/14 Tax Year)
- For occupational schemes, the scheme rules or other governing documentation must require a total minimum contribution that is at least 8% of the worker's qualifying earnings in a 12-month period, of which the employer must contribute at least 3% (you can pay more, if you wish). If there's a difference between the amount the employer is paying and the minimum total of 8%, the worker will make up this difference and they will get tax relief on their own contribution.
- For personal pension schemes there must be an agreement in place between the employer and the scheme provider, for the employer to pay contributions that are at least 3% of the worker's qualifying earnings in a 12-month period (you can pay more if you wish), and if there is a shortfall between the employer contribution and at least 8% of the worker's qualifying earnings, there must be an agreement in place between the scheme member (i.e. the worker) and the scheme provider for the scheme member to pay contributions equal to, or more than any shortfall. The scheme member will get tax relief on their contribution.
- The employer must be able to certify that the scheme requires contributions in accordance with one of three tiers of contributions. We will be publishing a separate article summarising the rules relating to contributions.
If your scheme qualifies
You can continue to use it from your staging date (please refer to our article published on 10 January 2014) for existing members. This means that any existing scheme members who will be eligible jobholders on your staging date can remain in that scheme and won't have to be automatically enrolled into a new scheme.
If your scheme doesn't qualify
It may be possible to change the scheme rules so that it does qualify, but if this isn't possible you will need to choose a new scheme.
The difficulty that many employers face is dealing with the uncertainty of what action they need to follow and the consequences of getting it wrong. These consequences can range from additional costs and professional fees through to fines from The Pensions Regulator.
We cannot over emphasise the importance for all employers to seek professional advice at their earliest opportunity. Leaving these issue to the last minute could prove costly and may even result in an inability to find an advisor who is willing (or able) to assist them. This is simply due to the volume of employers who are likely to be looking for help.