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Contributions

Workers and employers can both contribute into NEST to build a retirement pot that’s invested on behalf of the worker. But the new duties mean you’ll need to make at least a minimum level of contributions on behalf of some or all of your workers.

The legal minimum for jobholders is currently 2 per cent of their qualifying earnings. Of this, you need to pay at least 1 per cent. You can pay more if you want to.

What are qualifying earnings?

Qualifying earnings is a band of gross annual earnings on which you can calculate contributions for automatic enrolment. This is between £5,668 and £41,150 a year for the 2013/14 tax year.

The figures will be reviewed every year by the government.

Qualifying earnings include a worker’s salary, wages, overtime, bonuses and commission, as well as statutory sick, maternity, paternity or adoption pay.

Image illustrating what qualifying earnings include.

Phasing

Minimum contributions are being phased in gradually over the next few years to help employers comply with their new duties. The combined minimum contribution rate for qualifying earnings rises to 8 per cent from October 2018 onwards, of which you must pay 3 per cent.

Date

Minimum contributions

as a percentage of a worker’s qualifying earnings
October 2012 to September 2017

Minimum contribution: 2 per cent.
Of this, you must pay at least: 1 per cent.

For every £100 of qualifying earnings a worker earns, the minimum contribution is £2. Of this you must pay at least £1.
From October 2017 to September 2018

Minimum contribution: 5 per cent.
Of this, you must pay at least: 2 per cent.

For every £100 of qualifying earnings a worker earns, the minimum contribution is £5. Of this you must pay at least £2.
From October 2018 onwards

Minimum contribution: 8 per cent.
Of this, you must pay at least: 3 per cent.

For every £100 of qualifying earnings a worker earns, the minimum contribution is £8. Of this you must pay at least £3.

Different ways to work out minimum contributions

You don’t have to use qualifying earnings to work out contributions for jobholders. For example, you can use your existing definition of pensionable earnings if you already have a scheme in place or you might find it easier to use total pay.

This is often referred to as certification because you have to complete a document called a certificate if you’re using an earnings basis other than qualifying earnings. Minimum contributions are still phased in, but the minimum contribution rates may be different depending on which basis you choose.

Deciding which earnings basis is right for you and your workers will depend on your current pensions and reward strategies and the different cost of each option. The Pensions Regulator can help you understand which one is best for your organisation.

Using NEST to manage contributions

NEST allows you to use a definition of earnings that suits your organisation. It lets you work out contributions based on either qualifying earnings or one of the alternative earnings bases.

Our preset contribution levels make it easier to calculate minimum contributions. Or you can work out your own basis for pensionable earnings and use that if you want to. You can also choose to set contributions at a higher rate than the minimum.

We have a range of guides and case studies on contribution rates to help you get to grips with the different options.

Download our Guide to contribution levels and earnings bases (PDF).