minimum workplace pension contributions

nessierob

everyone including Torsten Bell says the minimum contributions to a workplace pension is 8% of qualifying earnings , but the DWP and TPR do not agree with this , they say the minimum is 9% of basic pay under set 1 rules so with a legal £1 basic pay and £29999 in commission and overtime , they say the contribution is 9p

looking at the DWP guide to certifying money purchase schemes it says 4 x the set 1 rule is 9% of basic pay but in paragraph 4,5 it says se1 9% of basic pay . there is a no 6 above the set 1 headline and that says

6 Under set 1 the pensionable earnings of the jobholder must be equal to or more than that jobholder’s basic pay (except where there is an upper limit to
contributions, but contributions made to jobholders affected by the upper limit satisfy the quality requirements under the Act).

This is the same as section 32e part 7 occupational and personal pensions act (automatic enrolement)(6) The proviso referred to is that the upper limit must not result in the payment of contributions by the employer, or by the employer and the relevant jobholder, that are less than those required by the relevant quality requirement.

as i read it 9% of basic pay can be used as long as its contributions are as good or better than the relevant quality requirement……………………if any experts can look at this and confirm what they think ty

eskbanker

Not sure where you're going with this, but if you're interpreting the reference to 9% within the definition of rule sets as meaning that all schemes must offer a minimum of 9% then no, that's not the case and 8% is indeed the standard.

The different rule sets cater for structural variances, an example of which is shown at https://www.gov.uk/government/publications/automatic-enrolment-guidance-on-certifying-money-purchase-pension-schemes/automatic-enrolment-guidance-on-certifying-money-purchase-pension-schemes#annex-c

Marcon

I think the difference between 'basic pay' and 'gross earnings' is where you're tying yourself in knots!

There's a beatifully clear explanation here: https://www.nestpensions.org.uk/schemeweb/nest/employers/set-up-your-workplace-scheme/how-to-set-up/contributions.html

Veloflyer

I'd be contributing as much as I could afford - regardless. You also receive tax relief on whatever you stick in - which is nice….

Marcon

https://forums.moneysavingexpert.com/discussion/comment/82174786#Comment_82174786

Not necessarily. Maximum tax-relievable contributions are subject to HMRC limits.

https://www.gov.uk/government/publications/rates-and-allowances-pension-schemes/pension-schemes-rates

If you're a basic rate taxpayer and you don't get anything 'extra' on top of basic rate tax relief (eg matched employer contributions), then if you're eligible for a LISA, that may be a better option.

nessierob

https://forums.moneysavingexpert.com/discussion/comment/82174707#Comment_82174707

no that's not quite what i am saying , the standard contribution in 8% of qualifying earnings so if you earn £26420 you take off the lower limit on contributions and receive a total contribution based on £20000 .so receive between yourself and the employer £1600 pension contributions a year , if you still earn £26420 but your basic wage is £10000 and £16420 is from commission and overtime set 1 says the contribution is 9% of basic pay so £900 total contributions

but people are missing the second rule on set 1 if you look at the DWP guide on certifying money purchase schemes you will find set 1 set said 4 times as being 9% of basic pay if you look at paragraph 4.5 on page 13 you find it shows set 1 as being 9% of basic pay , but above the headline set 1 you find a 6 written and at the bottom of the page 13 it says what it means

either at the bottom of page 13 in tiny print or as footnote 6 at the back of another version of the guidance

Under set 1 the pensionable earnings of the jobholder must be equal to or more than that jobholder’s basic pay (except where there is an upper limit to contributions, but contributions made to jobholders affected by the upper limit satisfy the quality requirements under the Act)

except where there is an upper limit to contributions ,but contributions made to job holders affected by the upper limit must still satisfy the requirements of the act

as 9% of basic pay can cause a limit on contributions , you cannot always just use 9% of basic pay as it causes the contributions to be below the requirements of the act

DRS1

I think you are looking at "alternative quality requirements". They are not relevant to a scheme which satisfies the "relevant quality requirement".

nessierob

https://forums.moneysavingexpert.com/discussion/comment/82174775#Comment_82174775

all the guides just say 9% of basic pay without mentioning the upper limit rule , Aviva sort of mention it by saying

certifying a scheme

certification means that the employer is satisfied that the scheme will meet the specific quality requirement , to enable contributions to be paid at at least level as good as qualifying earnings

but the still goes on to say set 1 is 9% of basic pay…….

(But as above only if they are as good or better than qualifying earnings)

Veloflyer

https://forums.moneysavingexpert.com/discussion/comment/82174810#Comment_82174810

Assuming the OP is earning, are you saying they would not receive tax relief on a pension?

nessierob

https://forums.moneysavingexpert.com/discussion/comment/82175055#Comment_82175055

the aqr rules are set 1 2 and 3 if an employer contributes on basic pay only SET 1 ,for most employees it is as good or better than the relevant quality requirement , so if your basic is very low with lots of overtime or commission it may not be . if you look at the link eskbanker put up look at paragraph 4.5 you will see set 1 stated as 9% of basic pay , but look at footnote 6

footnote 6

Under set 1 the pensionable earnings of the jobholder must be equal to or more than that jobholder’s basic pay (except where there is an upper limit to contributions, but contributions made to jobholders affected by the upper limit satisfy the quality requirements under the Act)

i have asked the DWP and the TPR how certification works all they say is you certify against the AQR or the RQR , i totally agree with this , but they will not answer the meaning of the upper limit , they are saying 9% of basic pay is suitable even if the contributions are as low as 9p a year so what does it mean? nothing?

Linton

https://forums.moneysavingexpert.com/discussion/comment/82175061#Comment_82175061

As a one line summary of the situation: There are 2 upper limits on how much you can put into a pension in any one tax year and get tax relief - your earned income and the pension allowance.