Contributions

Workers and employers can both contribute into Nest to build a retirement pot for the worker. The duties mean you’ll need to make at least a minimum level of contributions on behalf of some or all of your workers.

Any worker who earns over the lower threshold for qualifying earnings is called a jobholder. You’ll have to make a minimum contribution into their retirement pot.

Workers earning less than the lower threshold of qualifying earnings are called ‘entitled workers’ or ‘workers without qualifying earnings’. For these workers, you don't have to make a minimum contribution, but you can if you want to.

What are qualifying earnings?

Qualifying earnings is a band of gross annual earnings that can be used to work out what contributions a worker should get. It includes a worker’s salary, overtime, bonuses and commission, as well as statutory sick, maternity, paternity or adoption pay.

For the 2021/22 tax year it's anything over £6,240 and up to £50,270.

How much is the minimum contribution?

The legal minimum for jobholders is currently 8 per cent of their qualifying earnings. Of this, you need to pay at least 3 per cent. The remainder comes from your workers’ pay, which you'll have to collect and send to Nest, and tax relief from the government. Nest will claim the tax relief on your workers’ behalf.

You can pay more if you want to. Some employers pay all of their workers’ minimum contribution or pay additional amounts on top of the minimum. This is a good way of attracting and keeping good workers in your organisation.

The table below outlines the minimum contributions.

Limit on contributions

There are no restrictions on how much can go into a worker’s Nest pot. However, members may pay additional tax on contributions that go over the annual allowance set by the government. Most members won’t go over this amount.

Find out more about the government’s annual allowance on pension contributions

Working out minimum contributions

The minimum contribution is a percentage of a worker’s gross annual earnings that fall within the qualifying earnings band.

For the 2021/22 tax year this means that the first £6,240 of their earnings isn’t included in the calculation. For example, if a worker earned £20,000 in 2021/22 their qualifying earnings would be £13,864 and their annual minimum contribution would be based on that.

Because you pay contributions every time you pay your workers, you’ll need to work out qualifying earnings for each pay period and make your contribution based on these amounts. There may be pay periods when workers don’t earn enough to qualify for a minimum contribution.

The table below shows the lower and upper levels of qualifying earnings for some commonly-used pay periods. You’ll need to make a contribution based on everything they’re paid over the lower level and up to the upper level.

Different ways to work out minimum contributions

You don’t have to use qualifying earnings to work out contributions for jobholders. For example, you can use your existing definition of pensionable earnings if you already have a scheme in place, or you might find it easier to use total pay.

This is often referred to as ‘certification’ because you have to complete a document called a certificate if you’re using an earnings basis other than qualifying earnings. Minimum contribution rates may be different depending on which basis you choose.

Deciding which earnings basis is right for you and your workers will depend on your current pensions and reward strategies and the different cost of each option. The Pensions Regulator can help you understand which one is best for your organisation.

Members can contribute as much as they like to their pot each year. However, members whose annual contributions go above the annual allowance set by the government may be charged extra tax. Most member contributions will not exceed these amounts.

Find out more about the government’s annual allowance

Using Nest to manage contributions

Nest allows you to use a definition of earnings that suits your organisation. It lets you work out contributions based on either qualifying earnings or one of the alternative earnings bases.

Our preset contribution levels make it easier to calculate minimum contributions. Or you can work out your own basis for pensionable earnings and use that if you want to. You can also choose to set contributions at a higher rate than the minimum.

Find out more about calculating contributions in our help centre