26 March 2013

How to Satisfy Auto-Enrolment Requirements

Employers are progressively being drawn into the Auto-Enrolment pension net. If you are a small business employer how are you going to satisfy the requirements? Should contributions be at the 7%, 8% or 9% level?
 
One of the key things about Auto-Enrolment is that employers must set up a pension scheme and then make contributions to their employees' pensions. There are actually five ways of satisfying this requirement and all employers must choose one of them (or more than one - employees can be grouped into different categories). Depending on your workforce and pay structure, the costs to you and the benefits to employees will vary between them.
 
Warning: This doesn't make for easy reading but if you run a business, either you have to get into this for yourself or you need to get an adviser to advise you.
 
1. Certify on a "Relevant Quality Requirement" basis
- pension contributions must be at least 8% of qualifying earnings (3% from employer)
- "qualifying earnings" is a band (similar in principle to National Insurance)
 
2. Certify on an "Alternative Quality Requirement" basis - "Tier 1"
- pension contributions must be at least 9% of pensionable earnings (4% from employer)
- "pensionable earnings" must be at least basic pay
- this could be the most expensive option, but it is fairly simple
 
3. Certify on an "Alternative Quality Requirement" basis - "Tier 2"
- pension contributions must be at least 8% of pensionable earnings (3% from the employer)
- "pensionable earnings" must be at least the basic pay of the worker, and must be at least 85% of total pay of those being certified in that way.
 
4. Certify on an "Alternative Quality Requirement" basis - "Tier 3"
- pension contributions must be at least 7% of pensionable earnings (3% from the employer)
- "pensionable earnings" in this case is all earnings, including bonuses, etc.
 
5. Entitlement Check
- Rather than certifying, the employer could check each contribution against an 8% level applied to a qualifying earnings band
- This might be the best way if you have an existing scheme which is not being changed, and scheme rules don't guarantee that individual payments will satisfy the requirements

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