WORKPLACE PENSION CONTRIBUTION RATES
The minimum rate of contributions required for members of a workplace pension is usually quoted as 8% of earnings. However, that is a simplification. The rate can differ as can the amount of earnings it applies to. There are three alternatives for working out contributions, these are known as “sets”. Details of the sets are explained in The Pensions Regulator’s guidance reproduced below. The full guidance can be accessed here.
Set 1 A total minimum contribution of at least 9% of pensionable pay (at least 4% of which must be the employer’s contribution), or
Set 2 A total minimum contribution of at least 8% of pensionable pay (at least 3% of which must be the employer’s contribution), provided that pensionable pay constitutes at least 85% of earnings (the ratio of pensionable pay to earnings can be calculated as an average at scheme level), or
Set 3 A total minimum contribution of at least 7% of earnings (at least 3% of which must be the employer’s contribution) provided that all earnings are pensionable.
To certify, the rules of the scheme must require contributions in line with one of the sets. Where a personal pension is used, similar agreements to those described in paragraphs 46 to 50 between the scheme, jobholder and employer must be in place which reflect the contribution levels in one of the sets.
‘Earnings’ has the same meaning as in section 13(3) of the Pensions Act 2008 (see paragraph 38 for more information).
For sets one and two, pensionable pay must be at least equivalent to basic pay. Basic pay is defined as the gross earnings (see paragraph 59) of the jobholder, disregarding the gross amount of:
any commission, bonuses, overtime or similar payments
any shift premium pay, and
any reasonable allowance with respect to:
i. any duty of the jobholder, such as a duty in connection with the role of fire or bomb warden, that is ancillary to the main duties of the jobholder’s employment
ii. the cost of relocation of the jobholder to a different place of work
iii. in a case not covered by ii), the purchase, lease or maintenance of a vehicle
iv. in a case not covered by ii) or iii), the purchase, lease or maintenance of an item, or
v. in a case not covered by ii), iii) or iv), the delivery of a service to the jobholder.
This definition of basic pay is separate to the assessment of what components of pay make up qualifying earnings. Qualifying earnings are described in paragraph 38. When an employer is assessing their worker to identify which category of worker they fall into, they must assess whether qualifying earnings are payable in the relevant pay reference period. This is explained in Detailed guidance no. 3 – Assessing the workforce.
Some employers may be unable to, or not wish to, certify that their scheme meets one of the alternative DC requirements because, for example, elements of non-pensionable pay are fluctuating. These employers may instead wish to certify that their scheme meets the minimum requirements in the Act. They can do this if an examination of current remuneration data for all relevant jobholders reveals that their entitlement under the scheme has met the minimum requirements in practice.
The employer has one month from the effective date of the certificate (which, for the first certificate, will usually be the scheme’s duties start date) to carry out any necessary checks and calculations and sign the certificate. They may look forward for up to 18 months (the maximum certification period) to certify that their scheme will be qualifying for that period. At the end of the period, if the employer wishes to re-certify, they must do so within one month.