Automatic enrolment and the interaction with statutory leave


Helen Hargreaves, CIPP’s Senior Policy & Research Officer, discusses the statutory requirements regarding pension contributions


ith more and more employers now needing to think about pension schemes when they have never needed to before, how pension contributions are impacted by a period of statutory leave has probably never crossed their minds. However, it is one of those important little details which has perplexed many. With the new obligations under automatic enrolment there are two questions to be considered: l what happens when an employee is on leave on the assessment date? l what happens if an employee takes leave after they have been automatically enrolled? Whilst a lot still depends on the actual rules of the pension scheme, or on what is written into the employment contract and, of course, whether the employee is being paid during the period of leave, crucially, the automatic enrolment regulations specify some statutory requirements which must be adhered to as an absolute minimum.


W Paid leave


In accordance with the Pensions Act 2008, if an employee is on paid statutory leave at the assessment stage, the employer must still assess the eligibility of a worker


based on the qualifying earnings payable in the pay reference period. ‘Payable’ means what is paid or is due to be paid. If a worker is receiving a statutory payment, then this should be included in the assessment to determine the worker’s status for automatic enrolment. ‘Qualifying earnings’ is a reference to annual earnings of between £5,668 and £41,450 made up of any of the following components of pay that are due to be paid to the worker: l salary l wages l commission l bonuses l overtime l statutory sick pay l statutory maternity pay l ordinary or additional statutory paternity pay l statutory adoption pay. However, the situation is not quite so straightforward when considering the pension contributions payable during statutory leave for workers already in a pension scheme.


Schedule 5 of the Social Security


Act 1989 (‘the SSA’) requires that ‘employment-related benefit schemes’ comply with the principle of equal treatment and do not discriminate on


the grounds of gender. Whilst applying to a range of employer-financed schemes, they are of particular interest to pension schemes to which an employer makes contributions.


Under the terms of the SSA a pension scheme does not provide equal treatment unless employees on paid leave are treated, for the purposes of pension rights and benefits, as if they are working normally and receiving their normal pay. In short, the SSA requires that during periods of paid maternity, paternity and adoption leave, the employer must make pension contributions based on the amount the worker would have been earning had they not been on maternity, paternity or adoption leave. This is different to the employee contributions which are calculated on the actual pay received. It is important to remember that this is the statutory minimum. It may be that the pension scheme rules require more generous employer contributions, and in the case of final salary pension schemes the period of paid leave counts as pensionable service. The SSA does not apply to statutory


sick pay, so both employer and employee contributions are based on the level of pay actually received, unless the pension scheme rules dictate more generous terms.


Automatic enrolment thresholds for 2014/15 (and 2013/14) (The figures for 2014/15 are subject to change and Parliamentary approval.) Pay reference period


(The figures in brackets are for 2013/14)


Lower level of qualifying earnings Earnings trigger Upper level of qualifying earnings 22 PayrollProfessional Annual


£5,772 (£5,668)


£10,000 (£9,440)


£41,865 (£41,450)


1 week


£111 (£109)


£193 (£182)


£805 (£797)


2 weeks


£222 (£218)


£385 (£364)


£1,611 (£1,594)


4 weeks


£444 (£436)


£770 (£727)


£3,221 (£3,188)


1 month


£481 (£473)


£834 (£787)


£3,489 (£3,454)


3 months 6 months


£1,443 (£1,417)


£2,500 (£2,360)


£10,467 (£10,363)


£2,886 (£2,834)


£5,000 (£4,720)


£20,933 (£20,725)


technical


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