Check your Auto Enrolment Pension scheme

Do you operate a banded pension scheme using qualifying earning?

Have you checked that the start and end points meet the requirements in operation for pay reference periods commencing 6th April 2022.

Since the introduction of pension AE the qualifying earnings Lower Threshold has matched the National Insurance Lower Earnings Limit (LEL).

Often pension schemes would calculate contributions from the NIC LEL based on rules from former Contracting Out which ended some years ago. Legacy operations may still be continuing as they loosely aligned with Pension AE bindings.

Pension Lower Threshold is not the NI LEL

From 6th April the NI LEL increases from £120 per week to £123 (£6,396 annual) However, the Pension AE Lower Threshold continues based on £120 per week (£6,240 annual) with no rise. In future the Lower Threshold May be reduced further.

Check your scheme rules and calculation settings

Employers who operate banded earnings need to ensure that they are meeting or exceeding the qualifying minimum contributions to comply with Pension AE law. That £3 per week difference in banded earnings could see employers now falling foul of the law and their pension scheme no longer meeting qualifying conditions. Pensions need to meet at least the minimum conditions.

Check the scheme rules and also the payroll system settings, because if you are using the NIC LEL you may find your scheme no longer complying with the law.

What is the impact if we used the wrong value?

Where an employer is operating a minimum funded banded pension scheme and the appropriate Pension Reform Auto Enrollment thresholds have not been used, then the employer may find themselves in breach of Pension AE law and their scheme no longer qualifying. Employers will be obliged to enroll their employees into an alternate qualifying scheme.

To continue using a pre-existing scheme, the Pension Regulator will require employer to correct any errors as soon as possible, set the correct pension scheme contributions and deal with any underpaid contributions.

If an employer has continued to follow the National Insurance (LEL) in error as opposed to the Pension Reform Qualifying Lower Earnings Threshold (LET or LT), then there are potentially underpayments of contributions.

FrequencyLEL – LT8%5%4%3%
Weekly (1W)£324p15p12p9p
Fortnightly (2W)£648p30p24p18p
Lunar (4W)£1296p60p48p36p

If your pension scheme has been impacted and is in error, then act now to correct.

The government are indicating that in future years the Pension AE Lower Earnings Threshold will reduce further until it reaches a zero value.

PAYadvice.UK 1/4/2022 updated 25/4/2022

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