Benefit structure: Some schemes offer a range of different benefit structures to employers and members. If you participate in one of these schemes, it is up to you, as the employer, to determine the default benefit structure which will apply to your members for auto-enrolment.
CARE scheme: Career average revalued earnings schemes, or CARE schemes, are a type of defined benefit (DB) scheme (see Defined benefit (DB) scheme). A member’s final pension is worked out using an average of their salary during the time they have been actively contributing to the scheme.
Defined benefit (DB) scheme: Within DB arrangements, the amount of income a person receives at retirement is known in advance and is usually calculated based on years of service and salary at retirement. Some DB schemes are more commonly known as ‘final salary’ schemes. More on choosing the right pension scheme >
Default fund: DC schemes need to offer a suitable fund for members’ contributions to be automatically invested. Members who are not able to make or comfortable with making an investment choice can therefore default into this fund.
Defined contribution (DC) scheme: Within DC arrangements members pay a set contribution, often based on a percentage of salary. The amount of income that they will be able to take from their accumulated fund will not be known until they choose to retire. DC schemes are sometimes known as ‘money purchase’ schemes. Which pension scheme is right for you? >
Eligible worker: These are employees who work in the UK, aged between 22 and their State Pension Age, whose qualifying earnings total more than £10,000 per annum (this figure is subject to change each April). People who meet this criteria must be auto-enrolled into a qualifying pension scheme. Assess your workers automatically >
Entitled worker: These are employees who work in the UK, aged between 16 and 75, whose qualifying earnings total less than £5,876 per annum. People who meet this criteria can choose to opt-in to a pension scheme. Their employer does not need to make contributions to this scheme but can do so if they wish. Get help assessing employees >
Final salary scheme: See ‘Defined benefit (DB) scheme’.
Hybrid scheme: An occupational pension scheme that is made up of a mixture of DB and DC structures. This includes CARE schemes.
Inducement: This is action taken by an employer where the main purpose is to encourage an employee to opt-out of a pension scheme or not join one if they have the opportunity to do so. Inducement is illegal. More on ensuring you’re compliant >
Non-eligible worker: These are either:-
- employees who work in the UK, aged between 16 and 75 and whose qualifying earnings are between £5,876 and £10,000 per annum or
- employees who work in the UK earning more than £5,876 per annum and either aged between 16 and 22 or their State Pension Age and 75.
People who meet either of these criteria can choose to opt-in to a qualifying pension scheme. If they choose to do this, their employer must also pay contributions. Assess your workers automatically >
Occupational pension scheme: This is a pension scheme set up by an employer for their employees.
Opt-in: This is the process for non-eligible workers or entitled workers who choose to join a pension scheme.
Opt-out: Employees who have been automatically enrolled into a scheme can choose to stop contributing at any time. Employees who have chosen to opt-in can also choose to stop contributing at any time. Receive automatic compliance reminders >
Pay reference period: The period over which an employee is paid, such as weekly or monthly.
Pensionable pay: The definition of a person’s pay used in pension calculations. This will vary according to the rules of a particular scheme but usually includes basic salary and may or may not include, for example, bonuses or commission. Calculate contributions automatically >
Phasing: The minimum level of contributions that need to be made to DC schemes will be increased over a period of five years until all UK employers have met their auto-enrolment obligations. This is know as phasing.
Postponement: The deferral of auto-enrolment. Employers can choose to postpone meeting their auto-enrolment obligations by up to three months after their staging date. This may also be referred to as a ‘Waiting period’. Should you postpone? >
Qualifying earnings: These are the earnings used to decide whether an employee is an eligible worker or not. They are made up of: salary, commission, bonuses, overtime, statutory sick pay, statutory maternity, paternity and adoption pay. Assess your employees automatically >
Qualifying pension scheme: A pension scheme that meets the minimum requirements set out by auto-enrolment legislation. These requirements differ depending on the type of scheme but the scheme must not require employees to do anything in order to join. Is your pension scheme suitable? >
Registration: As part of the auto-enrolment process, employers must register with The Pensions Regulator to show that they are complying with the law. Get automatic compliance reminders >
Salary sacrifice: This is a way for employees to give up part of their salary, and thereby pay lower National Insurance Contributions in return for another benefit such as pension contributions.
Staging: This is the staggered introduction of auto-enrolment starting with the largest employers.
Staging date: This is the date at which an employer will have to begin auto-enrolling eligible employees. This is dependent on the size of the employer’s largest PAYE scheme. More about your staging date >
Trustee: Trustees look after the assets of a pension scheme on behalf of the scheme members.
Waiting period: See ‘Postponement’. Should you postpone? >