Workplace pensions

An employer can use any pension scheme for automatic enrolment provided it is a "qualifying scheme". A qualifying scheme must be:

Registered with HMRC for UK tax purposes. Note – a scheme not...

Shortened demo course. See details at foot of page.

Using an overseas pension scheme

It is possible for the employer to use an overseas pension scheme as a qualifying pension scheme provided it meets the quality standards and is regulated in the country in which it is established.

Defined contribution (DC) schemes

Defined contribution schemes must provide a minimum level of contributions. What this minimum level is depends on the definition of earnings used in the pension scheme. The following definitions can be used:

Standard quality test for DC schemes

Qualifying earnings – (sometimes referred to as ‘banded earnings’)

A person's qualifying earnings from an employment are their gross earnings in the qualifying earnings band in any pay reference period, e.g. weekly, four weekly or monthly.

The qualifying earnings band for 2023/24 is...

Shortened demo course. See details at foot of page.

Produce an initial certificate confirming that their chosen scheme will meet the alternative quality certification period, and on what basis; and

Renew the certificate at least once every 18 months

Only if significant changes were made to the contribution levels would the certificate expire within 18 months. A new certificate has to be completed within a month of the old certificate expiring and the employer must keep the certificates for at least six years after they have expired.

Prior to the abolition of contracting out on 6 April 2016, many DB pension schemes satisfied the minimum requirements if the employer had been issued with a contracting-out certificate and all the jobholders were in contracted out employment. These schemes must now meet either the test scheme standard or one of the alternative DB requirements as set out below.

The test scheme standard

The test scheme is a hypothetical scheme, which is used as a benchmark. A pension scheme will satisfy the test scheme standard if it provides benefits that are broadly equivalent to, or better than, the benefits the test scheme would provide. This means: Shortened demo course. See details at foot of page.

If either, under the scheme, accrued benefits are to be revalued at any time at less than the minimum rate, for example because revaluation is by the increase in average earnings rather than inflation, or there is a discretionary power in the scheme rules to revalue accrued benefits:

– the funding of the pension scheme must be based on the assumption that accrued benefits would be revalued at or above the minimum rate in the long term, and

– such funding must be provided for in the pension scheme’s statement of funding principles required under part 3 of the Pensions Act 2004, or in an equivalent funding statement if the pension scheme is not subject to the part 3 funding requirements of the Pensions Act 2004 (for example a non-UK pension scheme)

For a ‘hybrid pension scheme’ to be a qualifying workplace pension scheme, i...

Shortened demo course. See details at foot of page.