Pensions - Pensionable pay vs Qualifying Earnings

[PatsyTheCat]

Hello,

We're trying to set up our company pension scheme. One selection we have to make is whether the scheme is based on Gross Earnings, Basic Earnings or Qualifying earnings. We understand the difference between Gross and Basic with Gross including dividends, bonuses etc in the calculation and Basic not including those, but we're struggling a little bit with Qualifying Earnings.

If we select Qualifying Earnings will the company have to contribute more or less than if we selected Basic?

Same question but from an employees point of view, would our employees be getting a better pension with one or the other?

Which option do most small companies (who want to give their employees a fair deal but also want to keep an eye on costs) go for?

Thanks.

 

[PatsyTheCat]

Anyone?

 

[PatsyTheCat]

I'm starting to feel lonely.

Does no one know the answer or is is just a stupid question so no can be bothered to answer?

I would have thought with all the changes to pensions becoming compulsory etc this would be quite a well trodden path.

 

[billmccallum1957]

https://www.nestpensions.org.uk/schemeweb/NestWeb/public/employers/contents/employer-faqs.html

You might find this link useful. Essentially, you have to contribute 2% of the employees wage if they meet the qualifying rate (rising to 5% in 2018 then 8% in 2019).

 

[LondonSW]

Hi,
my wife biz (Limited) employ two person and we just started to look into this giving a sort of "mandate" to our IFA, via whom we have also SIPPs, Life Insurances etc since for our biz would be compulsory from April/2017.
I will be able to contribute to the post in few weeks time, once I will deepening the topic.
Please post your finding and possibly other infos.
Thanks!

 

[Questfp]

Hi PatsyTheCat. Qualifying Earnings is based on a band of earnings set by the government and it's currently between £5824 to £43000 per annum. It includes salary, bonuses, overtime, holiday pay and statutory payments. The current minimum contribution for Qualifying Earnings is 2%, with the employer paying at least 1%. Using Basic Earnings only is also called Tier 1 certification and contributions are paid from the first £ of earnings but only using Basic Pay to calculate the contributions. The minimum contribution for Tier 1 (Basic Pay) is 3%, with the employer paying at least 2%.
Another thing to consider, especially from your employees perspective is the tax relief basis. I hope that helps. I have put together a free guide for employers looking for help with auto enrolment. If you'd like more details, please do not hesitate to PM me.