DWP launches call for evidence on AE alternative quality requirements

The Department for Work and Pensions (DWP) has launched a call for evidence on the alternative quality requirement for defined benefit (DB) pension schemes that are used for automatic enrolment (AE).

These requirements allow for simpler alternative tests to be used so that a scheme can demonstrate that it is of sufficient quality to be used by employers to fulfil their automatic enrolment duties.

According to the DWP, the overarching aim of the review is to test to what extent the regulations are operating as intended, including whether there are any unintended consequences.

The Government is required to review the regulations made under the powers in Section 23A(1) of the Pensions Act 2008, which introduced the alternative quality requirements for UK DB schemes, with these reviews to take place at no more than three-yearly interval.

In particular, the call for evidence is looking at how the simplifications and flexibilities work in practice, and whether any new issues have arisen since the last triennial review in 2020.

For the 2023 review, the DWP will also be including collective defined contribution (CDC) schemes for the first time.

The DWP explained that the legislative framework for CDC requires employers who choose to use a CDC scheme to meet their AE duties are required, as with other schemes, to ensure that the scheme meets the minimum quality requirements for qualifying schemes.

“It therefore makes sense to include a review of the AE quality test which applies to CDC schemes as part of the triennial review of alternative AE tests thus syncing all the review timings (AE and CDC) together on the same cycle,” it stated.

The last review was held in 2020, and found that, broadly, the alternative quality requirements are still providing a simplified route to comply with the AE scheme quality requirements.

However, LCP head of pensions research, David Everett, suggested that the call for evidence could look further, arguing that whilst the tests on DB scheme benefit quality are working as intended, “as with all these things, there can always be improvements”.

“One of the drawbacks of the DB cost of accruals test is that it assesses scheme quality in two distinct steps – first by checking whether the scheme’s pensionable earnings definition is at least as generous as any one of the permissible ‘relevant earnings’ definitions, and only if this test is passed, going on to check whether the contribution rate required to be paid is no less than the ‘prescribed percentage’,” Everett commented.

“This can work against some schemes whose generosity is not in doubt, but who have a pensionable earnings definition that doesn’t match up to one of the DWP’s definitions. Making the test work for these schemes would be most welcome.”


This article first appeared on our sister title, Pensions Age.

    Share Story:

Recent Stories


FREE E-NEWS SIGN UP

Subscribe to our newsletter to receive breaking news and other industry announcements by email.

  Please tick here to confirm you are happy to receive third party promotions from carefully selected partners.


Helping the credit challenged get mortgage ready
A rising number of borrowers are finding it harder to access mortgages due to being credit challenged - whether that’s from historic debts, a county court judgment, or having little to no credit history.

In the latest episode of the Mortgage Insider podcast, Phil Spencer is joined by Eloise Hall, Head of National Accounts at Kensington Mortgages, and Alastair Douglas, CEO of TotallyMoney.


Inside the world of high net worth lending
The mortgage market continues to evolve, and so too does the answer to the question: what is a high net worth individual in today’s market? In this episode of the Mortgage Insider podcast, host Phil Spencer is joined by Stephen Moroukian, Head of Product and Proposition for Real Estate Financing at Barclays Private Bank, and Islay Robinson, founder and CEO of Enness Global. Together, they explore what brokers really need to know when supporting high net worth individuals.

The future of the bridging industry and the Autumn Budget
MoneyAge content editor, Dan McGrath, is joined by head of marketing at Black & White Bridging, Matt Horton, to discuss the bridging industry, the impact of the Autumn Budget and what the future holds for the sector.