Employer Contributions

The government has given the green  light to a new form of defined contribution pension scheme.  At least, it is new to the UK.  “Collective defined contribution” (“CDC”) schemes are common in the Netherlands and Denmark but the idea of introducing this type of scheme into the UK has only relatively recently gained traction.  The fact that the Royal Mail wants to put such a scheme in place for its 140,000-strong workforce has provided the impetus for the government to consult on how CDC schemes would operate and be regulated.

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On 6 April, the quality requirements that pension schemes being used for automatic enrolment (“qualifying schemes”) must meet are changing.

DC schemes – what’s changing?

At present, for a DC scheme to be a qualifying scheme:

  • The employer must make a contribution of at least 2% of the worker’s qualifying earnings.
  • The total contributions paid

Moses, so we are told, was 120 years old when he died, and “biz hundert un tsvantsik” – [may you live] until 120 – is an old blessing. The joke it gave rise to is probably just as old: Harry is fed up with his noisy neighbour, so he confronts him: “May you live to 119!” he says to his neighbour. “May you live to 120!” he says to his neighbour’s wife. “Why the difference?” asks the neighbour. “After putting up with you, she deserves a year of peace and quiet.” is the reply.

Whilst pension scheme actuaries are not yet assuming that schemes will have 120 year olds, most scheme funding assumes that some pensioners will be receiving their pensions well into their 100s. This is the case even though the latest mortality tables show a slowdown in the rate of increase of longevity.


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The qualifying earnings bands for the purposes of automatic enrolment are due to increase on 6 April 2019. For the tax year 2019/2020, the lower qualifying earnings threshold will be £6,136 (instead of £6,032) and the upper qualifying earnings threshold will be £50,000 (instead of £46,350). The old faithful earnings trigger will continue to remain stable at £10,000.

Why is this important?

Since October 2012, employers have had to make arrangements for certain workers in the UK to be automatically enrolled into a pension scheme that satisfies certain conditions (a qualifying scheme). Very broadly, workers fall into one of three categories (summarised below).


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