BusinessCompany NewsDWP publishes guidance for certifying AE schemes

DWP publishes guidance for certifying AE schemes

The Department for Work and Pensions has published guidance on auto-enrolment scheme certification for employers and advisors

THE DEPARTMENT for Work and Pensions has published guidance on auto-enrolment scheme certification for employers and advisers.

The guidance covers defined benefit (DB) and hybrid pension schemes, and also includes updated guidance on certifying defined contribution (DC) schemes, Accountancy Age’s sister publication Professional Pensions reports.

The main guidance sets out which DB or hybrid schemes can be used for auto-enrolment, as well as when and how employers can self-certify that their scheme meets the test standard.

It specifies which types of risk-sharing schemes, such as the defined ambition arrangements championed by pensions minister Steve Webb (pictured), must be certified by an actuary and cannot be self-certified by an employer.

The guidance says schemes which attempt to share risk between employers and workers, such as cash balance schemes, or hybrid schmes offering elements of DB and DC can be certified by the employer themselves, as the benefits offered are clearly superior to those specified in the legislation.

However, schemes in which some element of the test scheme set out in the legislation is not clearly met must be certified by an actuary.

The guidance also set out the quality requirements different types of scheme must meet (see table below).

The DWP also published guidance for actuaries on the same topic, as well as making slight updates on certifying defined contribution schemes for auto-enrolment.

Launching the publication, Webb said: “Automatic enrolment will begin in October and businesses of all sizes will be part of it, with the largest employers going first.

“The guidance will help employers who are already providing good workplace pension schemes to continue to do so under the reforms.

“It is very encouraging that many employers intend to use DB pensions for automatic enrolment.”

 The quality requirements in full:

Type of Scheme Quality Requirement  Additional Requirement
 Contracted-out final salary scheme  The existence of a contracting-out certificate  None
 Non-contracted-out final salary scheme  Test Scheme Standard  None
 Contracted-out career average scheme The existence of a contracting-out certificate  Scheme must provide for –
– revaluation, in service, of the earnings on which the pension is calculated at least in line with increases in the Consumer Price Index (CPI) capped at 2.5%4; or
– if revaluation is discretionary, it must be at least at the minimum level set out above and documented in the Statement of Funding Principles or a similar document.
 Non-contracted-out career average scheme  Test Scheme Standard  Scheme must provide for –
– revaluation, in service, of the earnings on which the pension is calculated at least in line with increases in the Consumer Price Index (CPI) capped at 2.5%5; or
– if revaluation is discretionary, it must be at least at the minimum level set out above and documented in the Statement of Funding Principles or a similar document.

 

To read the guidance for employers, click HERE

To read the guidance for actuaries, click HERE

To read the hybrid schemes quality rules (Pensions Act 2008) click HERE

To read the updated guidance on certifying DC schemes, click HERE

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