UK - Initial draft regulations outlining the requirements under which employers will be able to "self-certify" that their existing pension scheme meets the criteria for auto-enrolment, are likely to require a minimum contribution threshold of 7.6% of qualifying earnings, IPE has learned.
The department for work and pensions (DWP) announced in November 2008 that it planned to allow employers to self-certify that their schemes meet the "quality standard" equivalent to the contribution levels defined in the Pensions Act 2008. The policy requires a total contribution of 8% of banded earnings must be paid, comprising 4% from the employee, 3% from the employer and 1% in tax relief.
The government also confirmed that once a scheme had been certified employers would not be required to make retrospective reconciliation payments if contributions unexpectedly fall short, unless the "detriment to an individual exceeds a minimum threshold at the point of re-certification". (See earlier IPE article: Pension self-certifying may increase admin burden)
The final draft regulations are expected to be published for consultation in the autumn, however an initial draft of the rules seen by IPE proposed the minimum level of contributions to avoid repaying any shortfalls "must be equal to or more than 7.6% of the amount of qualifying earnings in the certification period".
In addition, the draft proposals require the employer to certify that at least 90% of staff who are active members of the scheme will qualify for this level of contribution.
That said, each certificate is still expected to last for a maximum of 12 months, after which time the employer will have to check and re-certify the scheme.
The draft rules also include a minimum level of contributions for existing money purchase and personal pension schemes in the two transitional periods outlined in the Pensions Act 2008 - which allow for the phasing-in of employer contributions.
In the first transitional period, which will last at least a year, the total contributions required are 2% of qualifying earnings - of which 1% must be from the employer - so a minimum of at least 1.9% is required to avoid paying shortfalls, while the second one-year transition period requires a total payment of 5% - with 2% from the employer - which equates to 4.75% as the minimum threshold.
The draft document also noted, however, that when engaging in self-certification of an existing scheme they must "have regard to" guidance issued by the secretary of state on the certification process and quality requirements.
A DWP spokesperson said: "Employers will be able to certify their scheme over the course of a year or some shorter period, if they are confident that their jobholders will receive the minimum contributions required by law. The precise details of the certification process will be set out in draft regulations which will be published in the Autumn for consultation."
If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com
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