Pensions World

Phil Daniels, Capita Hartshead, on how to check if your scheme has got the right qualifications.

By now, employers should be aware that the workplace pension reforms introducing auto-enrolment come into effect from October 2012. The government recently announced that the start for businesses employing between 50 and 3,000 employees would be delayed and that firms of up to 50 employees will not now have to auto-enrol until May 2015 at the earliest.

However, many may still not know whether they need to set up a new arrangement to accommodate their new employer duties, or if their existing scheme(s) will suffice, albeit with some modification.

Under the new regulations, employers must automatically enrol all eligible jobholders into an auto-enrolment scheme and also any non-eligible jobholders who wish to opt in.

Employers can choose to auto-enrol employees into an existing scheme or into a new arrangement: an occupational scheme, a group personal pension or the National Employment Savings Trust (Nest). Before doing so, however, all employers will need to ensure that they understand what qualifies as an auto-enrolment pension scheme; what makes it a qualifying arrangement; and whether their existing arrangement meets the relevant criteria (Box).

Auto-enrolment criteria

The auto-enrolment criteria specify that a scheme must not contain any provisions that prevent the employer from making the required arrangements to automatically enrol, opt in or re-enrol a jobholder or require the jobholder to express a choice in relation to any matter or to provide any information to remain an active member of the scheme.

Practically, this means that the rules of the scheme cannot:

• contain any barrier to enrolment into the pension scheme (ie a waiting period)
• require a jobholder to provide information before they can become a member (eg complete an application form)
• require the employer to provide information about a jobholder as a condition of joining beyond the specified information required
• require the jobholder to make any choice to join or remain a member of the pension scheme (such as choosing their investment fund).

Minimum requirements

For defined contribution (DC) schemes, the requirements set a minimum contribution entitlement.
These are: the employer must make contributions in respect of the jobholder; the total minimum contribution must be at least 8% of the jobholders’ qualifying earnings in the relevant pay reference period; the minimum employer’s contribution must be at least 3% of the jobholders’ qualifying earnings in the relevant pay period.

Qualifying earnings is a reference to earnings of between £5,035 and £33,540 (for the year 2006–7 – to be reviewed and a revised figure published from 2012). They can be made up of any of the following:

• salary
• wages
• commission
• bonuses
• overtime
• statutory sick/maternity/paternity/adoption pay.

Qualifying criteria

Most existing DC schemes currently define their contributions as percentage rates of pensionable pay. As a scheme’s definition of pensionable pay is likely to be different to the definition of qualifying earnings (eg basic pay only), DC schemes can meet the minimum requirements if they satisfy one of the criteria in the Table.

If an employer’s existing scheme does not meet the minimum criteria, they can choose to:

• increase the rate of contributions from the employer and/or the jobholder
• widen the elements of pay within the pension scheme definition of pensionable pay
• adopt a definition of pensionable pay which is based on qualifying earnings and a contribution rate that meets the minimum required.

Once an employer is satisfied that the effect of any changes fulfils the minimum requirements, they are then able to use it as a qualifying scheme.