Understanding pension scheme certificates for Automatic Enrolment

If you were asked to provide a copy of your certificate confirming that your pension scheme meets minimum contribution requirements for automatic enrolment, are you confident you could find it and that it would still be in date? In our experience missing or out of date certificates are one of the most common mistakes made by employers trying to comply with their automatic enrolment duties.

In this blog, our experts answer key questions around enrolment certificates. 

When is a certificate required?

The pension scheme you use to comply with your legal automatic enrolment duties must meet certain minimum requirements. If you are using a DC scheme the requirements include minimum levels of contributions.
 
The standard test is that total contributions must be at least 8% of Qualifying Earnings at least 3% of which must be paid by the employer. Qualifying Earnings are all earnings between a lower and upper limit (currently £6,240 and £50,270 respectively).
 
Most employers don’t use Qualifying Earnings to calculate pension contributions. Where that’s the case they must normally certify that their scheme meets one of the following alternative quality tests:

• Set 1 - total contributions of at least 9% of basic pay at least 4% of which must be paid by the employer
• Set 2 - total contributions of at least 8% of basic pay at least 3% of which must be paid by the employer provided total basic pay (aggregated for all employees) is at least 85% of total pay
• Set 3 - total contributions of at least 7% of total pay at least 3% of which must be paid by the employer

An employer can use the same test for all employees in the pension scheme or use different tests for different groups of employees.

How often do certificates need to be renewed?

Once an employer has certified that their DC scheme meets one of the alternative tests, the certificate must be renewed at least every 18 months. To renew a certificate, the employer must check that the scheme passed the quality test for the period covered by the certificate. If it did the new certificate must be completed within 1 month of the old one expiring. If the test wasn’t met the employer must make changes to ensure the scheme is likely to pass the test going forward before the new certificate is completed. It’s generally not necessary to take any retrospective corrective action for the previous period unless the Pension Regulator (TPR) decides the scheme was mis-certified. If that happens, the employer may have to make up any contribution shortfalls and could also have to pay a fine.

What records do I need to keep?

Certificates don’t need to be sent to TPR, however TPR can ask to see them. Employees and their representatives (eg trade unions) can also request a copy. Once a certificate has expired it should be kept for another 6 years.

What if I can’t find the certificates for my scheme or they have expired?

If you can’t locate your certificate, it’s out of date, or you’re not sure if your scheme should have one, please get in touch. We have been helping clients to certify their DC schemes since 2012 and can provide you with the support you need to make sure you are meeting the requirements.

This blog is based upon our understanding of events as at the date of publication. It is a general summary of topical matters and should not be regarded as financial advice. It should not be considered a substitute for professional advice on specific circumstances and objectives. Where this blog refers to legal matters please note that Hymans Robertson LLP is not qualified to provide legal opinion and therefore you may wish to obtain independent legal advice to consider any relevant law and/or regulation. Please read our Terms of Use.