- Standard quality test
- Alternative quality test
- Defined benefit schemes – quality standard
- Scheme certification
- Timescales for employers paying contributions
- Requirements for employers with no eligible employees
Qualifying pension scheme – what criteria must be met
A UK pension scheme is a qualifying pension scheme if it's a registered pension scheme that meets certain quality standards, allowing it to be used by an employer to auto-enrol employees for the purposes of the workplace pension reforms.
The quality standards vary depending on the type of pension scheme involved:
- Money purchase pension schemes must receive a minimum level of contribution
- Defined benefit pension schemes must provide a minimum level of benefits or meet a minimum cost of providing the benefits
- Hybrid pension schemes must broadly meet these minimum contribution, and benefit, standards as appropriate for the types of benefits provided
The quality standard applies on a member by member basis. This means that a scheme could be a qualifying pension scheme for some members but not others, giving employers the flexibility to include all employees in the same pension scheme without necessarily having to meet the quality standard for everyone.
And the employer must operate payroll deduction for member contributions (i.e. take them directly from the employee's pay and pass them to the scheme on the employee's behalf). This rule applies regardless of whether relief at source or the net pay method is used to obtain tax relief on these contributions.
Auto-enrolment schemes
If a qualifying pension scheme is to be used for auto-enrolment then, as well as meeting the quality standard, it must:
- be able to accept members by auto-enrolment and
- have a default contribution basis and
- have a default investment option.
Further information on qualifying pension schemes is available in the Pensions Regulator's ‘Pension Schemes' guidance.
Minimum contribution levels under auto-enrolment
For a money purchase pension scheme to be a qualifying pension scheme it must receive a minimum level of contribution.
Standard quality test
Since 6 April 2019, a total minimum contribution of 8% of qualifying earnings (including an employer contribution of at least 3%) is needed in each relevant pay reference period to meet the standard quality test.
This minimum contribution level was the final step-up in a phased approach to increase auto-enrolment saving.
The previous minimum levels were as follows:
| Contribution phasing period | Minimum employer contribution | Minimum total contribution (gross) | |
| Phase 1 | Staging date - 5 April 2018 | 1% | 2% |
| Phase 2 | 6 April 2018 – 5 April 2019 | 2% | 5% |
| Phase 3 | 6 April 2019 onwards | 3% | 8% |
Alternative quality test
An employer can, however, certify that their scheme is a qualifying scheme if it passes any of the following alternative quality tests based on the scheme's usual pensionable pay definition:
| Pensionable pay | Minimum employer contribution | Minimum total contribution (gross) | |
| Option 1 | Basic pay | 4% | 9% |
| Option 2 | At least 85% of total pay | 3% | 8% |
| Option 3 | Total pay | 3% | 7% |
- under all three options, pensionable pay must be at least equal to ‘basic pay' over the certification period and earnings must be pensionable from £1 upwards. There's no scope to exclude a tranche of earnings or operate a bottom-end pay deduction
- ‘basic pay' includes geographical allowances, but not other allowances, nor benefits in kind or irregular payments such as commission, overtime or bonus
- under option 2, the total pensionable pay for relevant members must be at least 85% of total pay for those members. But it's not necessary for every member to have 85% of their pay pensioned
Mix & match
An employer can choose to use different tests for different employees, even within the same pension scheme.
Previous phases for alternative quality tests
Like the standard quality test, the minimum contributions under the alternative quality tests were stepped up over three phases. The current minimum levels, from April 2019, are the result of the final phase.
Details of the previous minimum levels for each option are shown below:
Option 1: Only 'basic' pay is pensionable
| Contribution phasing period | Minimum employer contribution | Minimum total contribution (gross) | |
| Phase 1 | Staging date - 5 April 2018 | 2% | 3% |
| Phase 2 | 6 April 2018 – 5 April 2019 | 3% | 6% |
| Phase 3 | 6 April 2019 onwards | 4% | 9% |
Option 2: At least 85% of total pay is pensionable
| Contribution phasing period | Minimum employer contribution | Minimum total contribution (gross) | |
| Phase 1 | Staging date - 5 April 2018 | 1% | 2% |
| Phase 2 | 6 April 2018 – 5 April 2019 | 2% | 5% |
| Phase 3 | 6 April 2019 onwards | 3% | 8% |
Option 3: Total pay is pensionable
| Contribution phasing period | Minimum employer contribution | Minimum total contribution (gross) | |
| Phase 1 | Staging date - 5 April 2018 | 1% | 2% |
| Phase 2 | 6 April 2018 – 5 April 2019 | 2% | 5% |
| Phase 3 | 6 April 2019 onwards | 3% | 7% |
Periodic reviews of alternative quality tests
The Secretary of State must carry out reviews at least every three years from 2017 to be satisfied that, where alternative quality tests are being used, contributions also meet the standard quality test for at least 90% of relevant members. The alternative quality standards could be changed going forward if any of these reviews suggest this 90% pass rate isn't being achieved.
Defined benefit schemes – quality standard
The minimum benefit level needed for a defined benefit pension scheme to be a qualifying pension scheme normally depends on the benefits provided or the cost of providing the benefits.
- Test scheme standard: To meet the test scheme standard, the scheme must provide a pension of at least 1/120th of average qualifying earnings (in the last three tax years before the end of pensionable service) from State Pension age for each year of pensionable service (up to a maximum of 40 years).
- Modified test scheme standard: Career average earnings pension schemes must meet a modified test scheme standard based on 1/120th of each year's qualifying earnings revalued each year by at least the lower of:
- the growth in RPI,
- the growth in CPI, or
- 2.5 %
To pass the test, the cost of providing benefits in respect of each benefit group must require a contribution rate of at least:
- 10% of qualifying earnings,
- 11% of pensionable earnings, where they're at least equivalent to basic pay,
- 10% of pensionable earnings, where at least 85% of total pay is pensionable,
- 9% of pensionable earnings, where total pay is pensionable, or
- 13% of pensionable earnings, where pensionable earnings are at least equivalent to the amount of basic pay that's above either the lower earnings limit or basic state pension
Before 6 April 2016 (when contracting-out was abolished) contracted-out schemes could qualify by passing the reference scheme test. More information on these tests is available in the Pensions Regulator's 'Pension Schemes' guidance.
Scheme certification
Employers can certify their chosen money purchase workplace pension scheme as a qualifying pension scheme based on one (or more) of three alternative quality standards, rather than using the standard quality test.
To do this, they must:
- produce an initial certificate confirming that their chosen scheme (or part of it) will meet the alternative quality standard for the certification period - and on what basis and
- renew the certificate at least every 18 months.
The Pensions Regulator may ask for copies of these certificates.
Mix & match
If an employer is using different quality tests for different sections of the scheme, separate certificates must be provided for each section stating which employees they cover and on what contribution basis.
Initial certificate
The initial certificate must have an effective date no later than the date the auto-enrolment duties first apply to the employer (that is, their staging date or end of their waiting period if they're using one). The employer has up to one month from the effective date to do the necessary calculations and complete the certification form.
Certificate expiry
A certificate is normally valid for up to 18 months. But it will expire early if there's a significant change which means the quality test is no longer satisfied. Certificates must be kept for six years after their expiry.
Certificate renewal
When a certificate expires, the employer must check that the scheme passed the quality test for the period covered by that certificate and, based on that check, complete a new certificate within a month of the old one expiring.
If the check shows that the scheme failed the quality test for the last period, the employer must make changes so that it‘s likely to pass the test going forward before completing a new certificate. There isn't normally any need to take retrospective corrective action for the previous period. But if the Pensions Regulator decides that there weren't reasonable grounds for an employer signing a certificate in the first place, it can ask the employer to make up the contribution shortfall. It can also impose financial penalties.
The DWP has produced a detailed guide to the certification process.
Qualifying earnings for auto-enrolment
A person's qualifying earnings from an employment are their gross earnings in the qualifying earnings band in any pay reference period.
2024/25 tax year - the qualifying earnings band is earnings from £6,240 to £50,270 for pay reference periods of a year. This is reduced for shorter reference periods:
| 6 months | 3 months | 1 month | 4 weeks | 2 weeks | 1 week |
| £3,120 to £25,135 | £1,560 to £12,568 | £520 to £4,189 | £480 to £3,867 | £240 to £1,934 | £120 to £967 |
If someone has more than one employment, their qualifying earnings are calculated separately for each employment.
Earnings from an employment include:
- salary or wages
- overtime payments
- bonuses
- commission
- statutory sick pay
- statutory maternity pay
- ordinary or additional statutory paternity pay
- statutory adoption pay
Pay reference periods for auto-enrolment
The pay reference period is used as the basis to:
- calculate employees' qualifying earnings and establish their status
- test against the scheme quality standard
But, different pay reference periods can apply for each of these purposes.
Calculating qualifying earnings & establishing jobholder status
The pay reference period for establishing whether an employee has qualifying earnings depends on their normal pay frequency.
- For weekly paid employees, the pay reference period is one week
- For employees paid less often, the pay reference period is correspondingly less frequent (for example, four weekly or monthly)
- The minimum pay reference period is one week. This means anyone paid more often than once a week (for example, daily as work is done) doesn't have qualifying earnings
To check this, the employer has to determine what earnings fall into the pay reference period. For example, staff might be paid monthly on the 15th - but what period does this pay cover? It could be the 16th to 15th, the 1st to 31st or something else.
Alternatively, tax weeks or months (or multiples of them) can be used as the pay reference period, corresponding to the pay frequency. The minimum pay reference period is a week.
- Tax weeks start on 6 April each year and every seventh day thereafter. As the number of days in a tax year is not exactly divisible by seven, any remaining odd days at the end of the tax year are treated as a separate week.
- Tax months start on 6th of the month and end on the 5th of the following month.
If an employee has qualifying earnings in that pay reference period, they're a jobholder for the purposes of the employer duties.
Testing against the quality standard
Before 1 November 2013, the pay reference period for testing a qualifying pension scheme against the minimum contribution, or defined benefit, quality standard was always the 12 months starting on:
- the employer's staging date (or the part-year starting on the jobholder's automatic enrolment date if later - for example, where waiting periods are being used or employees join mid-year), and
- each subsequent anniversary of the staging date
A pay reference period ends if the individual stops being a jobholder or leaves the pension scheme (for example, by opting-out, retiring or changing jobs).
Since 1 November 2013, there are a further two pay reference period options for testing against the quality standard. Either of the pay reference period options available for calculating qualifying earnings and establishing jobholder status (see above) can be used for testing. This avoids the need for annual reconciliation.
Other factors
Timescales for employers paying contributions
The usual contribution controls normally apply to any contributions due to be paid to a pension scheme. But there are exceptions for member contributions due when an employee first joins (or re-joins) a pension scheme.
Any contributions deducted in the first three months of active membership must be paid to the scheme, at the latest, by the 19th of the fourth month - or the 22nd if the payment is made electronically.
This extended deadline makes the payment of refunds more straightforward for employers and schemes.
Requirements for employers with no eligible employees
If there are no employees to auto-enrol, there's no need to set up an auto-enrolment scheme. This could be because the employer has no eligible jobholders or because their eligible jobholders are already members of qualifying workplace pension schemes.
But even though there may be no employees to auto-enrol, non-eligible employees can still ask to go into a pension scheme - i.e. voluntarily opt-in. If this happens, or if an employee becomes eligible, the employer will need to set a scheme up at this point.
And, of course, even though there may be no need to set up a scheme (initially at least) the employer still has to write to their employees to let them know they can opt-in and complete a declaration of compliance.
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