What is the effect on pension schemes?

You must complete a declaration of compliance to show that you have an auto enrolment scheme in place by at least five months after your staging date.

You'll also have to re-declare compliance roughly every three years.

If you already have an existing pension scheme, the good news is you can use it to meet your employer duties, as long as it meets three sets of criteria. These are explained below.

The scheme must:

  • meet the qualifying criteria
  • not prevent you from automatically enrolling, opting in or re-enrolling a worker
  • not require a worker to provide information or make a choice in order to remain a member of the scheme.

The scheme must:

  • meet the quality requirements
  • be an occupational, personal or stakeholder pension
  • be tax registered.
  • You must make contributions to the pension scheme in respect of the jobholder.
  • The minimum contribution must be at least 8% of qualifying earnings of which at least 3% must be paid by you.
  • All the benefits payable must be 'money purchase' benefits.

Minimum contributions

The minimum contribution level required to meet the contribution quality requirement is based on a band of earnings called qualifying earnings.

Alternatively, you can certify that your scheme meets the minimum requirements using a scheme definition of pensionable salary. To find out more about qualifying earnings and certification, read the sections below.

Qualifying earnings are a band of earnings of more than £5,772 and £41,865 or less1. This includes:

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

1 These figures are for the 2014/15 tax year and are expected to change each year.

There will be a total minimum contribution of 8% of qualifying earnings, of which you must pay at least 3%. There must also be an agreement that the worker makes up any difference to at least 8%, including any tax relief.

To allow you to spread the cost of your employer duties, you can phase in the minimum contributions, as shown in the table below.

Contribution levels required to meet the quality requirement as a percentage of qualifying earnings

DateTotal must be at leastEmployer must pay at least 
October 2012 to September 2017 2% 1% An agreement must be in place for the jobholder to make up at least any difference between the total and the employer contribution.
October 2017 to September 2018 5% 2%
October 2018 onwards 8% 3%

As an alternative to using the qualifying earnings definition, you can choose to use certification.

A certificate can cover all workers or groups of workers. For example you might want to use one certification basis for one group of workers and a different certification basis for other workers. You can also use different certification levels for different groups of workers.

The contribution levels for certification can be phased in over six years from October 2012 and there are three options available, as shown in the table below.

9% of pensionable salary
  • You can use a scheme definition of pensionable salary.
  • Contributions must be calculated from the first pound of pensionable salary.
  • Pensionable salary must be at least basic pay1.
8% of pensionable salary, provided at least 85% of total payroll is pensionable2
  • You can use a scheme definition of pensionable salary.
  • Contributions must be calculated from the first pound of pensionable salary.
  • Pensionable salary must be at least basic pay1.
7% of all earnings2
  • All earnings must be pensionable.
  • Contributions must be calculated from the first pound of earnings.

1 Basic pay must include earnings before deductions such as tax and National Insurance, holiday pay and some statutory benefits but doesn't have to include variable pay such as bonuses, overtime and commission. 2 Earnings must include everything that's included in the definition of qualifying earnings.

You can certify for up to 18 months in advance. You must re-certify at least every 18 months or sooner if there is a 'significant change' such as:

  • changes to the scheme contribution level or
  • a company takeover/merger.

The certification options and how they may be phased in are shown in the tables below.

9% of pensionable salary

DateTotal must be at leastEmployer must pay at least 
October 2012 to September 2017 3% 2% An agreement must be in place for the jobholder to make up at least any difference between the total and the employer contribution.
October 2017 to September 2018 6% 3%
October 2018 onwards 9% 4%

8% of pensionable salary, provided 85% of total payroll2 is pensionable

DateTotal must be at leastEmployer must pay at least 
October 2012 to September 2017 2% 1% An agreement must be in place for the jobholder to make up at least any difference between the total and the employer contribution.
October 2017 to September 2018 5% 2%
October 2018 onwards 8% 3%

7% of all earnings2

DateTotal must be at leastEmployer must pay at least 
October 2012 to September 2017 2% 1% An agreement must be in place for the jobholder to make up at least any difference between the total and the employer contribution.
October 2017 to September 2018 5% 2%
October 2018 onwards 7% 3%

2 Earnings must include all items of pay that are included in the qualifying earnings definition.

The information on this page is based on our current understanding of legislation and regulations and may be subject to change.

Last updated: 18 Nov 2014
The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London EC3V 0RL.