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How do I calculate my contributions using certification?

You can choose to calculate contributions in a way that meets the requirements of one of the three sets or tiers described in the legislation. Each of the three certification tiers or sets have different minimum contribution rates. This means instead of using the qualifying earnings band to calculate minimum contributions, you can decide if you want to include bonuses, overtime, performance-related pay and other earnings related to the worker’s employment with you. Using certification means using one of the three tiers available to meet your legal duties. Every 18 months you need to create a certificate to say that you’re doing this. This is known as ‘certification’.

If you choose certification to calculate contributions, you’ll need to keep a copy of your certificate for six years after its expiry. You’ll also need to make it available to The Pensions Regulator or any of your workers on request.

Although current guidance talks about sets of contribution levels, you’ll find that we refer to them as tiers on our system. This is the term previously used by The Pensions Regulator in their guidance.

Tier 1

Tier 1 pensionable earnings must be equal to or more than the worker’s basic pay. This is a worker’s pay from the first pound. It generally excludes overtime, bonuses and commission.

For example, from 6th April 2019 onwards if a worker’s basic salary is £100, you’ll need to calculate employer contribution as 4 per cent of £100 which is £4 and worker contribution is 5 per cent less tax relief (1 per cent) which is £4.00.

Minimum contributions for the certification sets rise gradually, alongside the minimum contributions for qualifying earnings.

Date Minimum contributions
(as a percentage of worker’s pensionable earnings)
October 2012 to 5 April 2018

Minimum contribution: 3 per cent.

The employer must pay at least 2 per cent of this.

The worker must pay at least 1 per cent of this.

6 April 2018 to 5 April 2019

Minimum contribution: 6 per cent.

The employer must pay at least 3 per cent of this.

The worker must pay at least 3 per cent of this.

6th April 2019 onwards

Minimum contribution: 9 per cent.

The employer must pay at least 4 per cent of this.

The worker must pay at least 5 per cent of this.

 

Tier 2

For tier 2, total pensionable earnings of all workers must be at least 85 per cent of their total earnings. Total earnings means everything paid to a worker including salary, commission, bonuses and overtime, performance related pay and any other earnings you have paid the jobholder. It also includes statutory sick, maternity, paternity and adoption pay. The pensionable earnings must be equal to or more than the worker’s basic pay.

For example, if a worker’s gross pay is £500, you’ll need to calculate 85 per cent of the gross salary that is £425.00. From 6th April 2019 onwards the employer contribution will be calculated as 3 per cent of £425.00 which is £12.75 and worker contribution will be calculated as 5 per cent less tax relief (1 per cent) which is £17.00.

Minimum contributions for the certification sets rise gradually, alongside the minimum contributions for qualifying earnings.

Date Minimum contributions
(as a percentage of worker’s pensionable earnings)
October 2012 to 5 April 2018
(Introductory rate)

Minimum contribution: 2 per cent.

The employer must pay at least 1 per cent of this.

The worker must pay at least 1 per cent of this.

6 April 2018 to 5 April 2019
(Introductory rate)

Minimum contribution: 5 per cent.

The employer must pay at least 2 per cent of this.

The worker must pay at least 3 per cent of this.

6th April 2019 onwards
(Full rate)

Minimum contribution: 8 per cent.

The employer must pay at least 3 per cent of this.

The worker must pay at least 5 per cent of this.

 

Tier 3

Tier 3 includes all earnings in pensionable earnings, which means you need to include wages, commission, overtime, bonuses, performance-related pay and any other earnings you’ve paid the jobholder.

For example, from 6th April 2019 onwards if a worker’s gross pay is £500, you’ll need to calculate employer contribution as 3 per cent of £500 which is £15 and worker contribution as 4 per cent less tax relief (0.8 per cent) which is £16.

Minimum contributions for the certification sets rise gradually, alongside the minimum contributions for qualifying earnings.

Date Minimum contributions
(as a percentage of worker’s pensionable earnings)
October 2012 to 5 April 2018
(Introductory rate)

Minimum contribution: 2 per cent.

The employer must pay at least 1 per cent of this.

The worker must pay at least 1 per cent of this.

6 April 2018 to 5 April 2019
(Introductory rate)

Minimum contribution: 5 per cent.

The employer must pay at least 2 per cent of this.

The worker must pay at least 3 per cent of this.

6 April 2019 onwards
(Full rate)

Minimum contribution: 7 per cent.

The employer must pay at least 3 per cent of this.

The worker must pay at least 4 per cent of this.

 

You can find out more about certification sets on The Pensions Regulator (TPR) website.

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