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What should I do if I wish to choose my own contribution rates and pensionable pay?

Along with qualifying earnings and certification, you’ll also have an option to use the custom setting to help you calculate the contributions you’ll make for your workers.

This will be relevant if you want complete flexibility over the earnings basis and contribution levels you use to meet the minimum requirements.

By choosing the custom option you can set your earnings basis and contribution levels to whatever you want. It’s up to you to ensure that the amounts you pay are at least equivalent to minimum contributions using qualifying earnings. This is a legal requirement.

You’re not obligated to pay more than the legal minimum even if the worker wants to contribute more.

If you’re enrolling Workers without Qualifying Earnings (WWQE) you may want to use custom settings for your contribution rates and pensionable pay. This is because you don’t need to pay contributions for workers with this enrolment type.

For more information on creating a new group please see How do I add a new group once I’ve set up with NEST?

Here’s an example using a custom earnings basis for Workers without Qualifying Earnings.

A worker’s basic salary is £1,000 in March. They don’t earn any overtime or bonuses in the month.

You’ve put them in a group that uses a custom earnings basis, paying contributions for every pound above £250 for a calendar month. You’ve also set the contribution level to custom and chosen to pay 2 per cent employer and 2 per cent worker contributions. In this example, you’re working out contributions on a monthly basis.

Pensionable earnings for the month are £750. This is £1,000 minus £250 - as the first £250 is outside your custom earnings band. The total contributions for March will be 4 per cent of £750, which is £30. Employer contributions are 2 per cent of £750, which is £15.

Worker contributions are 2 per cent of £750. If the worker is eligible for tax relief this is split into:

  • 1.6 per cent from the worker’s pay, which is £12
  • 0.4 per cent tax relief, which is £3

The total contributions to be sent to NEST will be £15 + £12, which is £27.

We’ll ask the government to send us the remaining 0.4 per cent tax relief of £3, which we’ll add to the worker’s retirement pot when we receive it. If the worker isn’t entitled to tax relief, you’ll need to deduct the additional £3 from your worker’s pay and add this to the amount you send to NEST.

If a worker is eligible for tax relief, we’ll use the tax rate based on where they live to work out how much to claim. This will depend on the information provided to us by HMRC.

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