Unfortunately, there is unavoidable regulatory and industry terminology regularly used when discussing Auto Enrolment (sorry, but as a set of rules and regulations this is unavoidable.) Therefore, we have prepared the following glossary of ‘buzz words’ and key phrases in order to ease some of the pain!
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.
Defined contribution (DC) scheme: A type of pension scheme, plan or arrangement to which the member pays a regular set amount, typically based on a percentage of salary. Ultimate retirement income are not therefore pre-determined and are instead influenced and effected by an accumulated fund. DC schemes are often referred to as ‘money purchase’ arrangements.
Defined benefit (DB) scheme: A type of pension scheme, plan or arrangement set up to provide the member with a pre-determined level of pension income at retirement, regardless of cost. For example, final salary pension schemes are typically DB arrangements.
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.
Eligible worker/jobholder: A person in the UK, aged between 22 and State Pension Age, earnings above £9,440 per annum (this figure is subject to change each April) from an employer.
Entitled worker: a person working in the UK, aged between 16 and 74, earning less than £5,668 per annum.
Final salary scheme: (refer to ‘Defined benefit (DB) scheme’.)
Hybrid scheme: An occupational pension scheme made up of a mixture of both DB and DC structures.
Inducement: the illegal action of an employer who trys to avoid their AE obligations in particular ignore the Rules, avoid paying into Workplace Pensions, induce workers to Opt-out, not join etc.
Non-eligible worker: a person who works in the UK, aged between 16 and 74, whose earnings are between £5,668 and £9,440 per annum, or a person aged between 16 and 21 or State Pension Age (74) with earnings above £9,440.
Occupational pension scheme: a pension scheme set up by an employer for their employees.
Opt-in: the process where non-eligible workers or entitled workers choose to join a pension scheme. These people can also choose to stop contributing at any time.
Opt-out: workers and jobholders who have been automatically enrolled into a scheme who choose to stop contributing.
Pay reference period: The period over which a worker is paid, i.e. weekly or monthly.
Pensionable pay: The definition of a person’s pay used in pension calculations. Will vary according to the rules of a particular scheme but typically includes basic salary but may or may not include, for example, bonuses or commission.
Phasing: There is a minimum initial level of contributions that needs to be made to DC schemes. These levels will be increased or phased in over a period of five years until all UK employers have met their auto-enrolment obligations.
Postponement: The deferral of auto-enrolment by an Employer by up to three months after their staging date. Sometimes referred to as a ‘Waiting period’.
Qualifying earnings: the earnings used to decide whether an employee is an eligible worker or not. They can be made up of: salary, commission, bonuses, overtime, statutory sick pay, statutory maternity, paternity and adoption pay.
Qualifying workplace pension scheme: A pension scheme that meets the minimum requirements set out by auto-enrolment legislation. Requirements may differ depending on the type of scheme but the scheme must not require employees to do anything in order to join.
Registration: A vital part of the auto-enrolment process whereby employers must register with The Pensions Regulator to show their compliance with the law.
Salary sacrifice: a method 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: the gradual introduction of auto-enrolment started with the largest employers from 1st October 2012.
Staging date: the date on which an employer will have to begin auto-enrolling eligible employees. This is determined by the size of the employer’s largest PAYE scheme.
Trustee: Trustees look after and oversee the assets of a pension scheme on behalf of the scheme members.
Waiting period: See ‘Postponement’.
And perhaps we’ve saved the best until last :
Worker/jobholder: a person who works under a contract of employment (employee) or a person who has a contract to perform work or services personally and is not undertaking the work as part of their business. It doesn’t matter if the contract is in writing or implied. An individual who contracts to do work for a customer or client of their business undertaking or profession is specifically excluded (for example, an employer company contracts with a trader business to provide certain services or contracts with a professional firm, such as external lawyers, to provide legal advice).
This therefore covers full time, part-time, fixed term/temporary and agency workers, where there’s a contract with the employer to do work for them (not as part of a business relationship). Zero hours contract workers are also included.