Guide to Contribution Levels and Earnings Bases,PDF

7/29/2019 Guide to Contribution Levels and Earnings Bases,PDF

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Guide toearningsbases andcontribution levels

Guidance or employers

Step

one


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Contents

Background

page 3

1.1 Preset choices to help you meet your duties 3

Earnings bases and contribution levels

page 5

2.1 Earnings bases 5

2.2 Contribution levels 6

Qualiying earnings

page 8

3.1 Minimum contribution levels or qualiying earnings 9

Certifcation

page 10

4.1 Minimum contribution levels or tier 1 11

4.2 Minimum contribution levels or tier 2 12

4.3 Minimum contribution levels or tier 3 13Custom earnings

page 14

How tax relie works at NEST

page 15

6.1 How do I know i a worker is eligible or tax relie? 15

6.2 What i the worker isnt eligible or tax relie? 16

NESTs annual contribution limit

page 17

Late payments

page 18

Glossary

page 19

About this version

page 20

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Background01

When you enrol your workers into NEST youll need to assign them to a group.As part o setting up a group or groups o workers, youll need to decide howmuch you and your workers will be contributing on a regular basis. To do thisthere are two settings youll need to choose or each group:

earnings basis

contribution level.

Youll need to set up a dierent group or every combination o earnings basisand contribution level you decide to use.

Groups are collections o workers who share the same:

contribution levels and earnings basis

requency o contributions

earnings periods

payment due dates.

Weve created this guide to help you understand what the dierent earningsbases are and how their minimum contributions vary. Youll nd case studiesshowing how dierent contribution levels and earnings bases might work

or workers in your organisation. Well also tell you how you can work outtax relie on your workers contributions i theyre eligible.

As you might not be amiliar with some o the terms we use, weve includeda glossary at the back o this guide to help you understand them.

When youre setting up your groups youll also need to add your paymentrequency and pay dates. Our website provides clear instructions on howto set up a group. Just ollow the onscreen steps or see our separate guideHow to set up NEST.

1.1 Preset choices to help you meet your dutiesWhen you set up a group you can choose one o our preset contributionlevels. These are designed to make sure you pay what you need to or yourworkers. However, its your responsibility to enter a workers pensionableearnings correctly in each contribution schedule to ensure you pay the

minimum contribution.


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Workers without qualiying earnings (WWQEs), also known asentitled workers

These are workers earning 5,668 or less or the 2013/14 tax year. You donthave to pay any minimum contributions or these workers. Youll need to enrolthese workers i they ask you to. Its up to you whether you make contributionsor not and i so, how much.

I youre not going to make contributions or these workers and dont wantto manage their contributions to NEST youll need to ask them to arrange

payment directly with us. However, youll still need to enrol them intoNEST yoursel.

Salary sacrifce

I you have a salary sacrice agreement with your worker, you need toensure youve set the correct levels o contributions or each worker in thegroup. These contribution levels need to be based on post-sacrice pay.The contributions need to be set up as All employer contributions.


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2.1 Earnings basesYoull need to tell us the earnings basis youre using so we can work out whatcontributions to expect or your workers in each pay period. This means tellingus what parts o the workers earnings the contributions will be based on.

For example, suppose youve set the employer contribution to 3 per cent o theworkers earnings. This 3 per cent contribution could be a very dierent amount,depending on what parts o the workers pay you choose to take into account.

There are three dierent earnings bases you can choose rom that change thepensionable earnings youll calculate contributions on:

qualiying earnings

certication

custom earnings.

These options will help you dene what the pensionable earnings are oryour workers.

Every pay period youll need to tell us the amount o earnings each worker has,based on your chosen earnings basis. These are the gures youve used in yourpayroll calculations. We call these earnings pensionable earnings. Youll alsoneed to provide minimum contributions based on these earnings. Well use thegures youve given us to conrm youve paid the minimum contributions due.

Why might you choose one earnings basis over another?

Youve got the fexibility to choose which earnings basis best suits yourneeds. For example, you may nd certication is an easy way to work outcontributions, as you can base it on basic or total pay.

However, your choice will aect the minimum contribution rates youll needto pay to meet your employer duties. Theres more about this in section 3.

Beore you decide which earnings basis to use, youll need to understand whatits minimum contributions are.

Earnings bases andcontribution levels02


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2.2 Contribution levelsA minimum contribution level is the minimum percentage o each workerspay that should be paid in contributions based on the earnings basis youvechosen. Its up to you what level you set but youll need to pay at least theminimum level or each worker, in line with your employer duties.

You can pay more than the minimum level i you want to, or example as parto a reward package. Just remember theres a NEST annual contribution limitthat you should avoid going over. This limit is 4,500 per member or the

2013/14 tax year.This gure will be adjusted annually in line with increases in average earnings.

Choosing contribution levels

Phasing

Minimum levels o contributions rom employers and members are beingphased in. They were introduced at a lower rate in October 2012 and willincrease over time.

The table below shows how the minimum contribution levels will change over

the next ew years i youre using qualiying earnings as your earnings basis.

Date Minimum contributions(as a percentage of a workers qualifying earnings)

October 2012 - September 2017 Minimum contribution: 2 per cent.The employer must pay at least 1 per cent o this.

October 2017 - September 2018 Minimum contribution: 5 per centThe employer must pay at least 2 per cent o this.

October 2018 onwards Minimum contribution: 8 per centThe employer must pay at least 3 per cent o this.

You may need to increase the contributions youre paying to keep in line withthe increasing minimum levels. To make this easy, NEST oers a number opreset options.


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Basic-phased

I you pick the basic-phased setting well automatically set contribution levelsto the minimum levels required that year, based on the earnings you providewhen you send us your contribution data.

Basic-quick start

I you pick the basic-quick start setting well automatically set contributionlevels to the minimum levels required in October 2018, when the phasingperiod ends.

For example, i youre using qualiying earnings as your earnings basis theminimum contribution will be 8 per cent, o which you as the employer mustpay at least 3 per cent.

Custom

I you pick the custom setting you have the fexibility to set your owncontribution levels. However, the amount you pay must be at least equalto the minimum contribution levels as set out by law under the newemployer duties.

02 Earnings bases and contribution levels


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Qualifying earnings03

Workers annual earnings Workers qualifying earnings

5,000 0 (this worker has no earnings in the band)

20,000 20,000 - 5,668 = 14,332

50,000 41,450 - 5,668 = 35,782

Pay period Lower level of

qualifying earnings

Upper level of

qualifying earnings

Weekly 109 797

Fortnightly 218 1,594

Four-weekly 436 3,188

Monthly 473 3,454

I you choose qualiying earnings as your earnings basis youll be contributinga percentage o the workers gross annual earnings that all between 5,668and 41,450. The rst 5,668 o their earnings isnt included in the calculation.For example, i a worker earns 20,000 their qualiying earnings wouldbe 14,332.

This means that qualiying earnings cant be more than 35,782 (41,450minus 5,668) or the 2013/14 tax year.

These are annual gures. Because you pay contributions every pay period,youll need to work out qualiying earnings or each pay period in turn.

The table below shows the lower and upper levels o qualiying earningsrelating to a workers pay period.

Entitled workers

These workers dont have any earnings within the qualiying earnings bandor the pay period. This means their qualiying earnings or the pay period willbe zero. I youve enrolled any o these workers youll still need to tell us theirqualiying earnings or each pay period, even i this gure is 0.

To do this, youll need to select a reason or partial or non-payment ocontributions. Select Member has insucient earnings or each payreerence period while the worker remains in your employment.


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3.1 Minimum contribution levels or qualiying earningsI you want to comply exactly with the minimum contribution levels you maywant to choose qualiying earnings. Thats because minimum contributions arestrictly based on a percentage o this particular earnings basis.

Minimum contributions are calculated or each pay reerence period. So ithe worker received no qualiying earnings or a pay reerence period thenno minimum contributions would have to be paid or that period.

Case studyA worker earns 1,000 in May 2013. Youll need to work out contributions based on theirqualiying earnings.

The qualiying earnings will be 1,000 minus 473 as the rst 473 is outside the band.This comes to 527 which is the earnings in the band.

The minimum contribution is calculated as a percentage o the qualiying earnings o 527.

Up to October 2017, the minimum contribution is 2 per cent o 527.

You pay hal this amount - 1 per cent though you could pay more. The remainder o this2 per cent will come rom the workers contributions. In this example weve assumed theyreeligible or tax relie.

The minimum contribution is 2 per cent o 527 = 10.54.

Your employer contribution is 1 per cent o 527 which is 5.27.

The workers contribution is 1 per cent o 527 which is split into:

- 0.8 per cent rom their pay, which is 4.22- 0.2 per cent tax relie o1.05.

The total to send to NEST will be 5.27 + 4.22 = 9.49.Well then ask the government to send us the remaining 0.2 per cent tax relie o 1.05which well add to the workers retirement pot when we receive it.

You can read how tax relie works at NEST in section.


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Using certication as an earnings basis means you can choose a denitiono pensionable earnings in line with the tiered approach. You can decide iyou want to include bonuses, overtime, perormance-related pay and otherearnings related to the workers employment with you.

There are three dierent types, or tiers, o certication bases to choose rom.All o them start rom the rst pound o earnings.

For tier 1, pensionable earnings must be equal to or more than the workersbasic pay.

For tier 2, total pensionable earnings o all workers must be at least85 per cent o their total earnings. The pensionable earnings must beequal to or more than the workers basic pay.

Tier 3 includes all earnings as pensionable earnings, which means you needto include wages, commission, overtime, bonuses, perormance-related payand any other earnings the jobholder has been paid by you.

Maintaining a certifcate

I youre using certication youll need to complete a certicate at least every18 months. I theres a signicant change to any o the inormation in thecerticate youll have to ll out a new one.

Examples o signicant changes could be:

big changes to your organisation, such as mergers and acquisitions

changes to the contribution rate

changes to your pay and reward structure.

Its your responsibility to complete and maintain your certicate. Youcan nd a template o the certicate you need to ll out in Annex E o theMoney purchase schemes guidance (PDF) rom the Department or Work

and Pensions.On the certicate youll also need to declare what type o scheme NEST is.NEST is an occupational money purchase scheme.

As with many other records o your workers, its part o your employer dutiesto keep a copy o the certicate or six years.

Certifcation04
http://www.dwp.gov.uk/docs/money-purchase-schemes-guidance-2012.pdfhttp://www.dwp.gov.uk/docs/money-purchase-schemes-guidance-2012.pdf


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4.1 Minimum contribution levels or tier 1

Case study 1A workers basic salary is 1,000 in March 2013. Youve put the worker in a group that uses tier1 certication as its earnings basis. This means youve decided to use just basic salary or theworkers pensionable earnings.

The minimum contribution is calculated as a set percentage o the 1,000.

Up to October 2017, the minimum contribution is 3 per cent o 1,000. O this, you as theemployer must pay at least 2 per cent. The other 1 per cent will be made up in ull or in partby the workers contribution. In this example the worker is also eligible or tax relie.

The minimum contribution or this period is 3 per cent o 1,000 = 30.

Your employer contributions are 2 per cent o 1,000, which is 20.

The workers contribution is 1 per cent o 1,000, which is split into:

- 0.8 per cent rom the workers pay, which is 8 - 0.2 per cent tax relie o2.

The total to send to NEST will be 20 + 8 = 28.

Well then ask the government to send us the remaining 0.2 per cent tax relie o 2, which welladd to the workers retirement pot when we receive it. I the worker isnt entitled to tax relieyoull also need to deduct an additional 2 rom the workers pay and add this to the amountyou send NEST.

You can read how tax relie works at NEST in section.

04 Certication

Date Minimum contributions(as a percentage of a workers q ualifying earnings)

October 2012 September 2017(Introductory rate)

Minimum contribution: 3 per centO this, the employer must pay at least 2 per cent


Minimum contribution: 6 per centO this, the employer must pay at least 3 per cent.

October 2018 onwards

(Full rate)

Minimum contribution: 9 per cent

O this, the employer must pay at least 4 per cent


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Date Minimum contributions(as a percentage of a workers pensionable earnings)






(Full rate)



Case study 2A workers basic salary is 1,000 in March 2013. Because the workers basic salary is always atleast 85 per cent o their total pay, youve decided to put the worker in a group that uses tier 2certication as its earnings basis.

Minimum contributions are then calculated as a set percentage o 1,000. This means that the

calculation is easier than i youd chosen to use qualiying earnings.

Up to October 2017, the minimum contribution is 2 per cent o 1,000, o which you as theemployer pay 1 per cent. The other 1 per cent will be made up in ull or in part by the workerscontribution. In this example the worker is also eligible or tax relie.


Your employer contribution is 1 per cent o 1,000, which is 10.



The total to send to NEST will be 10 + 8= 18.

Well then ask the government to send us the remaining 0.2 per cent tax relie o 2, whichwell add to the workers retirement pot when we receive it. I the worker isnt entitled to taxrelie youll also need to deduct an additional 2 rom their pay and add this to the amountyou send NEST.

You can read how tax relie works at NEST in section 6.


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Case study 3A workers basic salary is 1,000 in March 2013 but they also earn overtime and bonuses o500 that month. So their total pay is 1,500. Youve put the worker in a group that uses tier 3certication as its earnings basis.

This means that the minimum contribution is calculated on the ull 1,500.

Up to October 2017, the minimum contribution is 2 per cent o 1,500, o which you as theemployer pay 1 per cent. The other 1 per cent will be made up in ull or in part by the workerscontribution. In this example the worker is also eligible or tax relie.


Your employer contribution is 1 per cent o 1,500, which is 15.



The total to send to NEST will be 15 + 12 = 27.Well then ask the government to send us the remaining 0.2 per cent tax relie o 3, whichwell add to the workers retirement pot when we receive it. I the worker isnt entitled to taxrelie youll also need to deduct an additional 3 rom the workers pay and add this to theamount you send NEST.

You can read how tax relie works at NEST in section 6.

04 Certication

Date Minimum contributions(as a percentage of a workers total earnings)






(Full rate)




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Using a custom earnings basis allows you to calculate your contributions basedon any other method o pensionable earnings thats appropriate or you. Youllneed to make sure that your contributions are at least as much as the legalminimums based on qualiying earnings.

Rather than use qualiying earnings or the alternative earnings bases alreadydiscussed, you may decide you want complete fexibility over your earningsbases and contribution levels. NEST lets you do this. By choosing the customoption you can set your earnings basis and contribution levels to whateveryou want.

Its up to you to ensure that the amounts you pay are at least as much as theminimum contribution levels set out by the new employer duties. This is alegal requirement.

Case studyA workers basic salary is 1,000 in March or the 2012/13 tax year and they earn no overtimeor bonuses in the month. So their total pay in March 2013 is 1,000. Youve put them in a

group that uses a custom earnings basis, paying contributions or every pound above 250or a calendar month. Youve also set the contribution level to custom and chosen 2 per centemployer and 2 per cent member contributions.

Qualiying earnings will be 1,000. This is 1,000 minus 250 - as the rst 750 is outside thequaliying earnings band.

The total contributions or March will be 4 per cent o 750 = 30.

Employer contribution are 2 per cent o 750 = 15.

Member contributions are 2 per cent o 750, which is split into: - 1.6 per cent rom the workers pay, which is 12

- 0.4 per cent tax relie o3.

The total to send to NEST will be 15 + 12= 27

Well then ask the government to send us the remaining 0.4 per cent tax relie o 3, whichwell add to the members retirement pot when we receive it. I the member isnt entitled totax relie, youll also need to deduct an additional 3 rom your workers pay and add this tothe amount you send NEST.

Both your overall contribution and your employer contribution are well above what you needto pay as the minimum, so you know youll be meeting your duties.

Custom earnings05


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When you pay contributions to NEST on behal o a worker theyre made upo employer contributions and member contributions.

Employer contributions are set at a level youve agreed with us. Membercontributions are a little more complicated, as they depend on whetherthe member is eligible or tax relie or not.

6.1 How do I know i a worker is eligible or tax relie?Workers are eligible or tax relie i they meet the ollowing criteria:

they have UK earnings that are subject to income tax or the tax year

theyre resident in the UK at some time during the tax year

they were resident in the UK at some time during the preceding ve taxyears and when they joined the pension scheme.

The maximum amount o contributions on which a member can claim relieis whichever o the ollowing is greater:

the basic amount - currently 3,600

the amount o the individuals UK earnings or the tax year.

This means that a member who has no relevant UK earnings may still qualiyor tax relie on contributions into a registered pension scheme up to thebasic amount.

In these circumstances tax relie can only be applied i the contributions aremade to a scheme that operates the relie at source (RAS) system. The taxrelie is available even i the member is a non-taxpayer.

To claim tax relie on behal o your workers well need their NationalInsurance (NI) number. We wont be able to claim their tax relie without it, soi they have one make sure youve included it with their enrolment details. Theonly exception is when theyre an overseas worker waiting or an NI number to

be given to them. In this case well be able to claim tax relie or them withoutan NI number.

I any o your workers dont have an NI number theyll need to get one romDWP. Theyll then need to add it to their personal details using their onlineNEST account or give it to you to pass on to us.

I we have your workers NI number, well assume that the workers youenrol in NEST are eligible or tax relie unless you or they tell us otherwise.

I you think a worker who has an NI number isnt eligible or tax relie, youneed to contact us on 0300 020 0090.

How tax relief works at NEST06


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You can get more inormation on qualiying or tax relie by visitinghmrc.gov.uk. Its your responsibility to check with them i youre unsureabout a workers eligibility or tax relie. You agree to this when you acceptNESTs Employer Terms and Conditions.

What you set and what you send

When youre setting up your groups and choosing your contribution levels,the percentages showing or member contributions will include the taxrelie amount.

For instance, i you set 1 per cent as the member contribution amount thiswill be made up o:

0.8 per cent member contribution this is what you send

0.2 per cent tax relie this is what NEST claims rom the government.

The member contribution level you set is higher than the amount you actuallysend i the member is eligible or tax relie.

6.2 What i the worker isnt eligible or tax relie?

The process will be the same. The only dierence is that the contribution youtake rom the workers net earnings will be 100 per cent o the gure youvecalculated or the member contribution.

So, i you set 1 per cent as the contribution amount youd send a 1 per centmember contribution.


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NESTs annual contribution limit is the maximum amount that can becontributed to any members retirement pot in a tax year. The contributionlimit or the 2013/14 tax year is 4,500. This gure will be adjusted annuallyin line with average earnings.

The limit applies to the period 6 April 2013 to 5 April 2014. Its independento both the workers joining date and the date you start using NEST.

For example, i you started using NEST in January 2014 and you enrol aworker in the same month, up to 4,500 can be paid into the members

retirement pot in the remaining our months o the 2013/14 tax year withoutgoing over the limit. The ollowing year the limit would apply across thewhole o the 2013/14 tax year.

Transers into NEST

Minimum contributions from more than one employer

Well always accept minimum contributions to the members retirement pot,even i they exceed the annual contribution limit. This might happen when amember has two or more employers at the same time who are using NEST.

What happens if you pay more than NESTs annual contribution limit?

Any contributions over NESTs annual contribution limit will be held in cashin the members account until the end o that tax year.

At this point well normally reund the contributions to the member, thegovernment or yoursel as the employer. Members may also have otherchoices about what to do with these extra contributions, such as addingthem to their retirement pots in the ollowing tax year. Well ask the memberwhat they want to do at the end o the tax year.

Well reund contributions in this order:

additional member contributions

excess member contributions

excess employer contributions.

NESTs annual contribution limit07


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Its part o your employer duties to send contributions on time. Its against thelaw to hold on to worker contributions past the payment due date, exceptwhere the worker is still in their opt-out period. The latest date we shouldreceive contributions deducted rom a workers earnings is the 22nd o theollowing month ater the contribution is taken, unless you select an earlierpayment due date when setting up the group.

I contributions arent paid on time as set out in the contribution scheduleyou sent to NEST, it could mean we have to tell The Pensions Regulator.

A payment due date means the date the payment must have cleared in NESTsaccount, so youll have to send the payment earlier than the date selected tomake sure we receive it on time. I we receive the contribution later than thisdate well regard it as late.

The timings weve set out below are only to give you a rough idea o how longpayment will take using the dierent methods available. The exact timingswill vary depending on the bank you use and the time o day you make thepayment. Please speak to your bank or more inormation.

I youve chosen to pay by Direct Debit you should set up the mandate atleast 11 working days beore its due to make sure the payment reaches us

on time. Youll need to allow our working days or subsequent payments.Once its successully set up, the advantages o Direct Debit are:

- less risk o errors and late payments

- you dont have to do anything apart rom provide us with your completedcontribution schedule.

I youve chosen to pay by direct credit then youll need to send thepayment at least six working days beore its due, to make sure it reachesus on time.

I youve chosen to pay by debit card then youll need to send the payment

at least our working days beore its due to make sure it reaches us on time.

Payments or members within their opt-out period may be paid ater thepayment due date, but no later than the date set out in the Occupationaland Personal Pension Scheme (Automatic Enrolment) Regulations 2010.

Late payments08


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Basic pay this is a workers pay rom the rst pound. It excludes overtime,bonuses and commission. Its only their basic salary.

Certifcation a way or an employer to set an alternative earnings basis tocalculate minimum contributions i they dont want to use qualiying earnings.Its been designed or employers who want to use basic pay to calculatetheir contributions.

Qualiying earnings this is the band o gross annual earnings on whichcontributions are calculated. For the tax year 2013/14 this means earnings

between 5,668 and 41,450. These gures apply to the 2013/14 tax yearand will be reviewed every year by the government.

Pensionable earnings earnings on which pension contributions are paid.They must be at least basic pay or the purpose o certication, rom the rstpound upwards. Its up to the employer to decide how they want to determinepensionable earnings beyond this. For example, pensionable earningscould include bonuses, overtime, commission or location allowances or acombination o these, in ull or in part, in addition to a workers basic pay.

Total earnings the total sum o any o the ollowing descriptions that arepayable to the worker in relation to their job:

salary, wages, commission, bonuses and overtime

statutory sick pay under Part 11 o the Social Security Contributions andBenets Act 1992 (c. 4)

statutory maternity pay under Part 12 o that act

ordinary statutory paternity pay or additional statutory paternity pay underPart 12ZA o that act

statutory adoption pay under Part 12ZB o that act.

Glossary09


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About this version

Version history

Version Date Whats changed?

0.1 15 August 2012 Initial version cleared or early releaseto NESTs transactional site

0.2 11 October 2012 Approach to entitled workers claried

1 28 March 2013 Some sections have been reordered

A change in the process o enrolling

workers without qualiying earnings

Case studies are now based on monthlyrather than yearly salary.

We keep changes to a minimumNESTs online accounts mean you and your delegates can do almost everything youneed to online.

Well make regular updates so we can ensure you have the best possible experienceo using NEST. We know you need NEST to work with your HR and payroll systemsso well try to avoid changes that aect existing processes.

Sometimes well need to make changes to our le templates because o thingsoutside our control, such as regulatory changes. I that happens well make surewe minimise disruption and well give you plenty o time to start using thenew templates.

Future service releasesFuture service releases will include new unctionality or both you and your members.The changes will usually be introduced in two or three service releases each year. Youshouldnt need to change anything but well let you know in advance i you do.

10


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NEST Corporation 2013. All rights reserved. This inormation is indicative only and may be subject to change. We dont give anyundertaking or make any representation or warranty that this document is complete or error ree. We dont accept responsibility orany loss caused as a result o reliance on the inormation contained in this document which is intended to be or guidance only nor

To fnd out more visit our website

nestpensions.org.uk

NESTNene HallLynch Wood Business ParkPeterboroughPE2 6FY

Contact us

Call: 0300 020 0090Email: [email protected]
http://www.nestpensions.org.uk/http://www.nestpensions.org.uk/http://www.nestpensions.org.uk/

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