Closed consultation

Automatic enrolment: defined benefit alternative quality requirement and provisions for seafarers and offshore workers

Published 19 July 2017

This was published under the 2016 to 2019 May Conservative government

© Crown copyright 2017

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This publication is available at https://www.gov.uk/government/consultations/automatic-enrolment-defined-benefit-alternative-quality-requirements-and-provisions-for-seafarers-and-offshore-workers/automatic-enrolment-defined-benefit-alternative-quality-requirement-and-provisions-for-seafarers-and-offshore-workers

1. About this consultation

1.1 Who this consultation is aimed at

The call for evidence is aimed at employers, employee representatives and pension industry professionals, including scheme administrators, actuaries, independent financial advisers and employee benefit consultants and any other interested parties.

1.2 Purpose of the consultation

As part of the review of automatic enrolment that the Department for Work and Pensions (DWP) is currently carrying out, we are required to carry out a statutory review of the operation of regulations made under section 23A of the 2008 Pensions Act.

Provisions under section 23A set out the alternative quality requirement for defined benefit (DB) pension schemes that are used for automatic enrolment. The requirement allows for a simpler alternative test to be used so that a scheme can demonstrate that it is of sufficient quality. This call for evidence aims to ascertain whether or not the government’s policy intentions in this area are being achieved, in particular how the simplifications and flexibilities introduced under the test work in practice, and whether there are any unintended consequences.

This call for evidence is also seeking input and evidence on provisions related to regulations made under Sections 96 and 97 of the Pensions Act 2008, namely The Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2012 and The Automatic Enrolment (Offshore Employment) Order 2012, which respectively include seafarers and offshore workers within automatic enrolment. This document aims to test whether these regulations are working as intended in enabling seafarers and offshore workers to be automatically enrolled into workplace pensions.

1.3 Scope of the call for evidence

The call for evidence on the alternative quality requirement applies to England, Wales and Scotland.

The call for evidence on seafarers and offshore workers applies UK-wide.

1.4 Duration of the call for evidence

The consultation period begins on 19 July 2017 and runs until 11:45pm on 30 August 2017.

1.5 How to respond to this call for evidence

Email your response to automaticenrolment.consultation@dwp.gsi.gov.uk.

You can also post it to:

Elellta Beyene
Department for Work and Pensions
Automatic Enrolment Policy
1st Floor
Caxton House
Tothill Street
London
SW1H 9NA

Please ensure your response arrives by 30 August 2017.

When responding, please state whether you are doing so as an individual or are representing the views of an organisation. If you are responding on behalf of an organisation, please make it clear who the organisation represents, and where applicable, how the views of members were assembled.

Send any queries about the subject matter of this consultation to automaticenrolment.consultation@dwp.gsi.gov.uk.

2. How we consult

2.1 Consultation principles

This call for evidence is being conducted in line with the revised Cabinet Office consultation principles published in January 2016. These principles give clear guidance to government departments on conducting consultations.

2.2 Feedback on the consultation process

We value your feedback on how well we consult. If you have any comments about the consultation process (as opposed to comments about the issues which are the subject of the consultation), including if you feel that the consultation does not adhere to the values expressed in the consultation principles or that the process could be improved, please address them to:

DWP Consultation Coordinator
2nd Floor
Caxton House
Tothill Street
London
SW1H 9NA

Or email caxtonhouse.legislation@dwp.gsi.gov.uk.

2.3 Freedom of Information

The information you send us may need to be passed to colleagues within the Department for Work and Pensions (DWP), published in a summary of responses received and referred to in the published consultation report.

All information contained in your response, including personal information, may be subject to publication or disclosure if requested under the Freedom of Information Act 2000. By providing personal information for the purposes of the public consultation exercise, it is understood that you consent to its disclosure and publication. If this is not the case, you should limit any personal information provided, or remove it completely. If you want the information in your response to the consultation to be kept confidential, you should explain why as part of your response, although we cannot guarantee to do this.

To find out more about the general principles of Freedom of Information and how it is applied within DWP, contact the central Freedom of Information team by emailing freedom-of-information-request@dwp.gsi.gov.uk.

This team cannot advise on specific consultation exercises, only on Freedom of Information issues. Read more information about the Freedom of Information Act.

3. Chapter 1: alternative quality requirement for defined benefit schemes

3.1 Background

Automatic enrolment into workplace pensions was introduced in 2012 to enable more people to save for their retirement and to regularise saving for most people in work. The law requires employers to enrol all eligible[footnote 1] ‘jobholders’[footnote 2] into a scheme of sufficient quality.

Quality requirements for defined benefit schemes and defined benefit elements of hybrid schemes

Employers who choose to use a defined benefit (DB) scheme to meet their automatic enrolment duties must ensure their scheme meets the minimum quality requirements set out in law.

Up until 1 April 2015, a DB scheme with its main administration in the UK could meet the quality requirements for automatic enrolment by virtue of being contracted out of the State Second Pension (Additional State Pension) or, by meeting the test scheme standards (TSS)[footnote 3], to demonstrate scheme quality. The ‘test scheme’ is a hypothetical DB scheme and, in simple terms, a scheme satisfies the TSS if it provides broadly equivalent to pensions to those of the test scheme. Only those (non-contracted-out) schemes that satisfy TSS in relation to all relevant jobholders may be used as a qualifying DB scheme.

In straightforward cases, guidance[footnote 4] sets out how employers can certify that their scheme meets the TSS. In more complex cases, the scheme actuary will need to certify the scheme.

For contracted-out DB schemes, the existence of a valid contracted-out certificate was accepted as evidence of a scheme’s quality because the scheme would have already had to meet a test of overall scheme quality in order to be used for contracting out. However, the abolition of contracting out from 6 April 2016 removed this option. This meant that the only way a former contracted-out DB scheme could demonstrate that it was of sufficient quality for automatic enrolment was if it met TSS.

In a public consultation in 2013[footnote 5] (followed by a further consultation in 2014[footnote 6]), DWP invited views on whether there was a less onerous way for DB schemes to demonstrate the quality requirement for the purposes of automatic enrolment. The majority of respondents expressed the view that the existing TSS was unnecessarily complex and employers would benefit from the flexibility to use an alternative, simpler test.

Consequently, the framework for an alternative quality requirement test for DB schemes was introduced through the Pensions Act 2014 Act (which inserted section 23A into the 2008 Pensions Act)[footnote 7]. Details of the operation of the alternative quality requirement tests are set out in regulations (made under section 23A).

What are the alternative quality requirements?

Since 1 April 2015, there have been 2 alternative tests of scheme quality available to employers offering defined benefit schemes or certain hybrid schemes[footnote 8] to meet their automatic enrolment duties.

  1. A cost of accruals test – based on the cost to the scheme of the future accrual of active members’ benefits.

  2. A test enabling hybrid schemes which meet prescribed requirements to use the money purchase quality requirements – this is based on meeting the existing quality requirements for defined contribution schemes: a minimum contribution equivalent to 8% of qualifying earnings (section 20 of the 2008 Pensions Act)

The policy objective behind both of the alternative tests is to provide a substitute, simpler test for employers and their advisers when determining if a DB or hybrid scheme meets the quality requirements for automatic enrolment. The alternative tests are of particular help to employers with formerly contracted-out schemes (who from April 2016 onwards would otherwise have needed to ensure that their schemes met the TSS).

1. ‘Cost of accurals’ test

The cost of accruals test is based on the cost to the scheme of the future accrual of active members’ benefits. The test is normally applied at scheme-level and, broadly speaking, a DB scheme (or DB elements of a hybrid scheme) meets the quality requirement for automatic enrolment if: “the cost of providing the benefits accruing for, or in respect of, the relevant members over a relevant period would require contributions to be made of a total amount equal to at least a prescribed percentage of the members’ total relevant earnings over that period”[footnote 9]. In other words, the cost of providing benefits would at least require the minimum levels of contribution rates prescribed in legislation.

Prescribed percentages in relation to members’ earnings are set at a level that broadly represents the cost of providing the benefits under the TSS. To maintain the existing quality standards for schemes, section 23A of the Act provides that the percentage prescribed in regulations cannot be below the 8% total contribution rate required for a qualifying defined contribution (DC) scheme.

The cost of accruals test generally applies at a scheme-level. However, where there is material difference in the cost of providing benefits for different groups, the test is applied at a benefit scale level. The only exception to this is formerly contracted-out DB schemes that meet certain conditions (see section below on ‘Transitional provisions for formerly contracted-out schemes’).

The policy objective is to keep the process simple and minimise burdens on employers. Therefore, the test has been designed to allow existing information in recent actuarial activities to be relied upon in determining whether the scheme satisfies the alternative test.

Transitional provisions for certain formerly contracted-out schemes

In response to calls from stakeholders, transitional easements were introduced for employers formerly contracted-out schemes that wish to use the ‘cost of accruals test’. This easement permits a scheme-level cost of accrual test to employers of formerly contracted-out schemes even if there is a material difference in the cost of providing benefits at different groups[footnote 10].

This easement is available in respect of jobholders who were in contracted-out employment on 5 April 2016; and where the scheme rules have not been amended after that date in a way that would mean that the contracting-out requirements would continue to be satisfied but for the abolition of contracting out.

The transitional period ends at the earlier of:

(i) the date of the first actuarial report after 5 April 2016 in which the actuary determines whether there is, or was, a material difference in the cost of providing the benefits accruing for different groups of relevant members; or

(ii) 5 April 2019.

The easement is intended to simplify the test for formerly contracted-out schemes that are typically delivering benefits that were at least equivalent to, or in excess of, the requirements for contracting out of the Additional State Pension. Without this easement, employers may have to undertake or commission added work to demonstrate that their scheme was of sufficient quality to be used for automatic enrolment.

2. A test enabling schemes which meet prescribed requirements to use the money purchase quality requirements

In response to feedback from a public consultation in 2014[footnote 11], a further test was introduced whereby a DB scheme will be able to use the money purchase quality requirement for DC schemes (set out in section 20 of the 2008 Act).

To determine whether the scheme may apply this test, there are a number of conditions that must be satisfied[footnote 12]:

(a) members’ benefits are calculated by reference to factors which include the contributions made to the scheme by, or on behalf of, the member;

(b) the contributions in sub-paragraph (a) are converted, in accordance with scheme rules, as soon as reasonably practicable and no later than a month after receipt, into a right to an income for life;

(c) the benefits payable to the member under the scheme become payable no later than the member’s State Pension age;

(d) following the conversion of the benefits in sub-paragraph (a), the amount of the members’ benefits cannot be reduced unless this is at the member’s request;

(e) following any actuarial valuation, the trustees or managers have absolute discretion to use any excess funds to increase members’ benefits; and

(f) where benefits have been increased using the excess assets referred to in (e), they cannot be reduced except at the member’s request.

3.2 Why are we carrying out a review now?

As part of the review of automatic enrolment that DWP is currently carrying out, the Secretary of State is under a duty to review the regulations made under powers in section 23A(1) of the 2008 Act, introducing the alternative quality requirements for UK DB schemes. A review must take place in 2017, and thereafter at no more than three-yearly intervals.

The overarching aim of the review is to test to what extent the regulations are operating as intended, including whether there are any unintended consequences, and to what degree the provisions are continuing to deliver simplifications and efficiencies for employers and schemes.

3.3 Chapter 1: questions

Operation of the alternative quality requirements

Question 1

Do the alternative quality requirements for DB schemes broadly deliver the intended simplifications and flexibility in contrast to the test scheme standard?

Question 2

Are there specific scenarios, in particular with the commissioning of actuarial reports, in which the alternative requirements are raising any concerns or unintended consequences?

Application of specific provisions

Regulation 32M(9) of the Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010 (‘the Regulations’) provides the definition of ‘relevant earnings’[footnote 13] to which the prescribed percentages are applied. Regulation 32M(10) of the Regulations establishes the corresponding percentages to be applied to the members’ earnings.

Regulation 32M(3) provides that the ‘relevant members’[footnote 14] of the scheme to whom the test applies are the active members of the scheme, subject to certain provisions.

Question 3: definition of ‘relevant earnings’

  • To what extent are the different forms of earnings which a scheme can use to determine pensionable earnings meeting the needs of employers? Are employers taking advantage of these variations?
  • Are there any circumstances in which a scheme is unable to satisfy any of the different forms of earnings used?

Question 4: definition of ‘relevant members’

  • Does this definition fit with existing practice? Are there any circumstances in which it is causing problems or additional work?
  • When applying the test at benefit scale level what difficulties, if any, has the actuary encountered in determining whether there is a material difference in the cost of providing benefits between different groups of relevant members?

Actuarial reports

To minimise the burden on employers and schemes, the alternative quality requirement in regulation 32M has been designed to run in parallel with existing requirements such as scheme funding activities. Existing information such as recent actuarial valuations and reports required for funding purposes can be relied on to determine if the scheme satisfies the alternative test.

Question 5

  • What actuarial reports have schemes been relying on for applying the tests under the alternative quality requirements?
  • To what extent are employers commissioning separate reports?

Question 6

Where employers are choosing to commission reports, are they using TSS or alternative requirements?

Question 7

The legislation is not prescriptive on who should apply the test. In practice, who is applying the alternative quality requirement?

Multi-employer and (formerly) contracted-out schemes

Regulation 32M (6) enables participating employers in multi-employer schemes to decide whether the alternative test operates across the whole of the scheme, subject to there not being a material difference in the cost of providing the benefits accruing for different groups of members. The intention is that individual employers do not have to apply the test or commission the actuary to test the benefit scales of the relevant members (or groups of relevant members) whom they employ, unless schemes already break the assessment down to employer level, or where participating employers wish to do so.

Question 8

Are multi-employer schemes making use of simplifications provided for under this part of the legislation?

The transitional period in relation to certain formerly contracted-out schemes ends on the earlier of two dates:

i) the date that the first written report determining whether there is, or was, a material difference in the cost of providing the benefits accruing for different groups of relevant members is signed by an actuary after 5 April 2016; and

ii) 5 April 2019, subject to certain[footnote 15] conditions being met.

Question 9

  • Are these transitional arrangements being utilised?
  • What action will be taken by schemes in order to be ready to apply the test at scheme-level once the flexibilities have ended on 5 April 2019?

DB schemes meeting money purchase quality requirements

The regulations also provide, in some specific circumstances, a further test whereby a prescribed scheme will be able to use the money purchase quality requirement set out in section 20 of the 2008 Act. The requirement is that, under the scheme, the total contributions paid by the jobholder and the employer must be at least 8% of the jobholder’s qualifying earnings; including an employer contribution of at least 3%. Further conditions are set out in regulations[footnote 16].

Question 10

  • DWP is only aware of one scheme which applies the test. Are you aware of any schemes which use this test?
  • What are the characteristics of these schemes?

Delivering further cost efficiencies for employers

Question 11

Is there anything not covered above which you want to tell us about the operation of the alternative quality test, in particular regarding any burden on schemes and employers when compared to the test scheme standard?

Question 12

In your view, how might the alternative tests be further simplified in order to reduce burden on employers whilst preserving the required level of quality? What are the consequences?

4. Chapter 2: seafarers and offshore workers

4.1 Background

Seafarers are people working in any capacity on board a ship or hovercraft[footnote 17]. They include technical, engine and deck officers, people working in the catering and hotel trades, and general ratings (ie seamen who are not of officer rank) doing a variety of work. Offshore workers are people working on oil or gas extraction and related activities in the UK territorial sea, UK continental shelf, or a cross-boundary field[footnote 18].

Seafarers and offshore workers were initially excluded from automatic enrolment under section 96 and 97 of the Pensions Act 2008. The exclusion was not intended to be permanent and was to allow time for fuller consideration of a series of complex issues surrounding these groups, with a view to bring seafarers and offshore workers within the scope of the workplace pension reforms, as far and as soon as was practical.

Following a consultation, DWP met key stakeholders representing the industry, employer bodies and individuals[footnote 19] and sought information from them in order to inform the initial assessment of the policy impact. Stakeholders were broadly supportive of the policy intent to bring seafarers and offshore workers within the scope of the workplace pension reforms. Further details of the consultation responses and the explanation for change can be found in a full government response to the consultation published in December 2011[footnote 20].

Using the powers in the 2008 Act, DWP introduced secondary legislation to extend the coverage of the workplace pension reforms to offshore workers and seafarers in 2012. The Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2012[footnote 21] (which amend the Automatic Enrolment Regulations 2010) and The Automatic Enrolment (Offshore Employment) Order 2012[footnote 22], extended the scope of automatic enrolment to include seafarers and offshore workers if they are ordinarily working within the United Kingdom.

‘Ordinarily working’

Seafarers and offshore workers who work, or ordinarily work, in the United Kingdom (UK) fall within the definition of jobholder in the 2008 Act. This means that they should be treated in the same way as land-based workers. If they meet the age and earnings criteria they need to be automatically enrolled and if they don’t, they will need to be offered the opportunity to join a workplace pension scheme. All such workers must be given information about how automatic enrolment applies to them. Relevant case law supports the view that the ‘base test’ was the correct test to apply to ascertain where a seafarer works or ordinarily works. The employment base is likely to be determined by several factors, including where the seafarer lives and where a tour of duty begins and ends.

Offshore workers are as if they are ordinarily working in the UK if they are working in the UK territorial sea, UK continental shelf, or in the UK area of a cross-boundary field.

There has been one legal challenge to the interpretation of ‘ordinarily working’ in respect of seafarers[footnote 23].

The judgement concentrated on the precise interpretation of section 1(1)(a) of the Pensions Act 2008 and whether the ‘base test’ was the correct test to apply to ascertain where a worker ‘ordinarily worked’.

Outcome

The Pension Regulator’s approach to peripatetic workers is correct and, when establishing where such a worker ‘ordinarily works’, the base test is the appropriate test to apply.

A seafarer may be regarded as ordinarily working in the UK during any period when the seafarer is working from a base situated in the UK, even if the ship spends most of its time outside of the UK, so that the majority of the seafarer’s work is performed outside of the UK.

A seafarer who lives in the UK and who works on a ship which – although it spends most of its time outside the UK – habitually begins its voyage from and returns to a port in the UK, may be regarded as based in the UK and hence as a worker who ordinarily works in the UK under the worker’s contract.

A seafarer who lives in the UK but who works on a ship which spends all or most of its time outside the UK, and whose tours of duty do not habitually begin and end in the UK, cannot be regarded as based in the UK or as a worker who ordinarily works in the UK under the worker’s contract.

Why are we carrying out a review now?

In order to ensure the policy and legislation is operating as intended, the Secretary of State is required to review the regulations made in regulation 53 of the Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2012 by 1 July 2018.

Article 4 of The Automatic Enrolment (Offshore Employment) Order 2012 requires the Secretary of State to review the operation and effect of this Order and publish a report by 1 July 2018.

Article 1(2) of the Automatic Enrolment (Offshore Employment) Order 2012 is a ‘sunset clause’ which provides (with some exceptions) that the Order ceases to have effect on 1 July 2020. Following the review it will fall to the Secretary of State to consider whether the Order should be allowed to expire, be revoked early, or continue to be in force with or without amendment by July 2020.

Table 1: Key estimates of the characteristics of the offshore workforce and industry used to assess the impact of automatically enrolling eligible offshore workers

Offshore workers Estimate
Number of workers on UK continental shelf 28,990[footnote 24] (as per published stats)
Ordinarily working in UK All
Qualifying age (over 22 and below State Pension age) All
Employees under a ‘worker’s contract’ (ie not self-employed) All
Qualifying earnings above £10,000 per year All
Average annual earnings More than £45,000 (Upper Earnings Limit in 2017/18)
Proportion saving into a qualifying pension scheme at AE roll-out 60% at time of final IA
Assumed opt-out rate 10% (in line with national opt-out rate)
Number of firms 170 (Oil & Gas UK had 170 members at time of final IA)
Size of firms (small/medium/large) Unknown
Direct admin costs (excluding employer contributions) Large companies: £1,000 (where advice paid for); small/micro employers: £200 (where advice paid for); £0 where no payment was made for advice[footnote 25].

Table 2: Key estimates of the characteristics of seafarers used to assess the number of seafarers eligible for automatic enrolment

Seafarers Estimate
Number of UK officers active at sea 10,650[footnote 26] (as per published stats)
Ordinarily working in UK 45%
Qualifying age (over 22 and below State Pension age) All
Employees under a ‘worker’s contract’ (ie not self-employed) All
Qualifying earnings above £10,000 per year All
Average annual earnings More than £45,000 (Upper Earnings Limit 2017/18)
Proportion saving in a qualifying pension scheme at AE roll-out 45%
Assumed opt-out rate 10% (in line with national opt-out rate)
Number of firms employing eligible seafarers Over 100
Size of firms (small/medium/large) Not known
Have at least one shore based staff None
Direct admin costs (excluding employer contributions) Large companies: £1,000 (where advice paid for); small/micro employers: £200 (where advice paid for); £0 where no payment was made for advice[footnote 27].

4.2 Chapter 2: questions

Data assumptions

Assumptions have been updated where changes have been identified from the final Impact Assessment Stage of the Workplace Pension Reform Secondary Legislation 2012[footnote 28].

Question 1

With particular reference to the data included in tables 1 and 2, do you have any evidence that the data assumptions set out above should be modified? If so, please provide details and any supporting information.

Question 2

Are you able to provide details of specific employers (including relevant sub-contractors) within the offshore industry to help the department monitor the impact of automatic enrolment on the industry?

Implementation of policy

Consider the extent that the policy has been successful in giving offshore workers and seafarers the opportunity to save into a workplace pension.

Question 3

Are you aware of any specific difficulties that have been experienced by employers in implementing or understanding the requirements to automatically enrol offshore workers and seafarers? If so, please provide examples and evidence of the impact, where possible.

Question 4

Is there any additional guidance or support that you think could be provided to assist you in implementing the requirements? If yes, please give details.

Question 5

In your view, are there ways in which the legislation could be improved? Again, please give details evidencing, where possible, the way in which the legislation in its current form has caused any particular difficulties for employers of seafarers or offshore workers if this has been the case.

Ordinarily working

Seafarers and offshore workers who work, or ordinarily work, in the United Kingdom (UK) will usually fall within the definition of jobholder[footnote 29] in the 2008 Act. This means that they should be treated in the same way as land-based workers.

Question 6

Is there is any reason why seafarers or offshore workers should be treated differently from other peripatetic workers (eg airline staff) when considering where a worker ordinarily works?

5. Glossary

5.1 Hybrid schemes

Hybrid schemes are defined, for the purposes of automatic enrolment only, as schemes that are neither wholly money purchase nor wholly defined benefits. They generally have elements of both types of benefits, and depending on the type of scheme involved (see table below), they may need to satisfy a combination of the defined benefits quality requirement and the money purchase quality requirement, or they may only need to satisfy either of the requirements.

5.2 Contracting out

Under the old State Pension rules, up to 5 April 2016, individuals were able to ‘contract out’ of the Additional State Pension. This meant that workers and employer could pay less NI contributions into the state system. It was not possible to contract out of the basic State Pension. Individuals could only opt out (‘contract out’) of the Additional State Pension if they were part of a private pension – such as a workplace or personal pension scheme – that could build up to replace the State Pension.

The new State Pension has replaced the existing basic and Additional State Pension, ending contracting out from 6 April 2016.

5.3 Defined benefit (DB) contracting out

Many workplace pension schemes where the pension is linked to the individual’s earnings contracted out all of their scheme members as part of their scheme rules. The new State Pension has replaced the existing basic and Additional State Pension and ended contracting out for defined benefit pension schemes.

5.4 Terms in the ‘cost of accruals’ test

Under the test, a defined benefits scheme (or defined benefits element of a hybrid scheme) is a qualifying scheme, if the cost of providing benefits accruing for or in respect of the relevant members over a relevant period would require contributions to be made of a total amount equal to at least a prescribed percentage of the member’s total relevant earnings.

5.5 Relevant members

Relevant members are the active members of the scheme of which the jobholder is a member. However, where there is or was a material difference in the cost of providing the benefits accruing for different groups of relevant members over the relevant period, then (subject to the transitional arrangement) the testing is carried out separately for each sub-group (ie benefit scale). The actuary, having considered a range of factors, will determine whether there is a material difference in cost.

5.6 Relevant period

The relevant period is the period over which the cost of providing the accruing benefits is estimated. The period is normally to be taken from the most recent written report signed by the actuary, containing information about the cost of future benefit accrual by reference to a period which begins later than the date report is effective from.

5.7 Relevant earnings

The relevant earnings are the earnings which the scheme uses to determine pensionable earnings, provided that they are at least equal to or more than the earnings calculated using one or more of the definitions set out in the table below, for all of the relevant members. To ensure that the cost of providing benefits, under the alternative quality requirements, is broadly equivalent to the cost of similar benefits, under the test scheme standard, the earnings definitions have a corresponding prescribed percentage (see table below) contribution rate.

Earnings definition and corresponding minimum contribution rate

Legislative definitions Prescribed percentage of relevant earnings
Relevant earnings must be at least equal to or more than Survivors' pension benefits provided by scheme Survivors' pension benefits not provided by scheme
Qualifying earnings 10% 9%
Basic pay 11% 10%
Basic pay and, taking all of the relevant members together, the pensionable earnings of those members constitute at least 85 per cent of the earnings of those members in the relevant period 10% 9%
Earnings 9% 8%
Basic pay above the single person's basic State Pension or the Lower Earnings Limit 13% 12%

  1. Eligibility is defined as jobholders who are aged between 22 and State Pension age, earning over £10,000 in 2016/17 section 3 2008 Act. ↩

  2. Jobholder is defined as is a worker: (a) who is working or ordinarily works in Great Britain under the worker’s contract; (b) who is aged at least 16 and under 75; and (c) to whom qualifying earnings are payable by the employer section 1 of Pensions Act 2008. ↩

  3. In sections 21 to 23 of the Pensions Act 2008. ↩

  4. Guidance for employers on certifying defined benefit and hybrid pension schemes ↩

  5. Workplace pensions: proposed technical changes to auto enrolment ↩

  6. Workplace pensions automatic enrolment: simplifying the process and reducing burdens on employers ↩

  7. Section 23A gives the Secretary of State a power to impose alternative quality requirements for a DB scheme on 1 of the 3 bases. Two of these have been utilised via regulations made under section 23(1)(a) and 23(1)(b) and inserted into: ‘The Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010’ (SI 2010/772). ↩

  8. Refer to the glossary for a definition of hybrid schemes for the purposes of automatic enrolment. ↩

  9. Section 23A(1)(b) of the 2008 Pensions Act. ↩

  10. Regulation 5 of the ‘The Occupational and Personal Pension Schemes (Automatic Enrolment) (Miscellaneous Amendments) Regulations 2016’ (SI2016/311). ↩

  11. Technical changes to automatic enrolment: consultation on draft regulations ↩

  12. Regulation 32L of ‘The Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010’ (SI 2010/772). ↩

  13. The relevant earnings are the earnings that the scheme uses to determine pensionable earnings. ↩

  14. The relevant members are the active members of the scheme of which the jobholder is a member. ↩

  15. Those conditions are: (a) in respect of jobholders who were in contracted-out employment on 5 April 2016, and (b) where the scheme rules have not been amended after that date in a way that would mean that the contracting out requirements would not continue to be satisfied but for the abolition of contracting out. ↩

  16. Regulation 32L of ‘The Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010’ (SI 2010/772). ↩

  17. Pensions Act 2008 Section 96. ↩

  18. Employment Rights Act 1996 section 201. ↩

  19. Representatives of industry and employer bodies and individuals included: the British Chamber of Shipping, Oil & Gas UK, the Offshore Contractors Association (OCA) and the Caterer’s Offshore Trade Association (COTA). Representatives of individuals included the Rail and Maritime Union (RMT), Nautilus International and Unite. ↩

  20. Workplace Pension Reform: Completing the legislative framework for automatic enrolment ↩

  21. The Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2012 ↩

  22. The Automatic Enrolment (Offshore Employment) Order 2012 ↩

  23. R (on the application of Fleet Maritime Services (Bermuda) Ltd) v The Pensions Regulator [2015] ↩

  24. UKCS Offshore Workforce Demographic Report 2015 ↩

  25. Employers’ Pension Provision Survey 2015 ↩

  26. Seafarer statistics: 2016 ↩

  27. Employers’ Pension Provision Survey 2015 ↩

  28. Impact assessment: making automatic enrolment work ↩

  29. Jobholder is defined in section (1) of the Pensions Act 2008 and section 1(1) of the Pensions (No. 2) Act (Northern Ireland) 2008 as a ‘worker who works ordinarily in Great Britain under a worker’s contract, who is aged at least 16 and under 75 and who is paid qualifying earnings’. ↩

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