As part of the valuation process for your defined benefit (DB) pension scheme, you need to work with the employer to set their contribution rate. You must prepare and maintain a schedule of contributions and check that the employer makes the correct payments.
Where there are payment failures, you should contact the employer promptly to resolve the issues. Report material late payments to us.
Schedule of contributions
You need to produce a schedule showing the rates of contributions payable to the scheme by or on behalf of the employer and scheme members who are accruing benefits, and the dates by which those contributions are payable. You should review the schedule regularly and revise it when necessary. The scheme actuary must certify the schedule.
The schedule:
- should be clear enough to enable you to monitor payments
- should be drafted to avoid, as far as possible, the need to refer to other scheme documents
- mustn’t show any due date for member contributions later than the 22nd day of the month following deduction from pay (or the 19th day if payments aren’t made electronically)
- may contain contributions to repair a funding deficit as an additional percentage of pensionable pay
- shouldn’t refer to the contributions covering individual augmentations or general benefit improvements, unless these were planned and due to be paid when the schedule of contributions was certified
Monitoring contributions
You must check that contributions are paid into the scheme according to the schedule of contributions. You should have procedures for checking contributions are paid and for reconciling them with the schedule of contributions.
You need good record-keeping and adequate internal controls to ensure that the scheme and the schedule of contributions is administered, maintained and managed according to the scheme rules and legal requirements. You must also record and keep information on transactions.
Resolving late payments
Where a payment failure occurs you should contact the employer promptly to alert them about the failure and to try and resolve it. You may need to find out and record the causes and circumstances of the payment failure. You should ensure you have a process for obtaining overdue payments and correcting administrative errors.
You must report a material late payment to us, usually within 10 working days of having reasonable cause to believe that it exists.
Where there is a current or imminent danger to payments if immediate preventative action isn’t taken, you should also report the failure or impending failure to us by telephone as soon as you become aware of it.
You must report the material late payment to members within 30 days of reporting to us.
Circumstances which are likely to be material and which you should report to us include where:
- you’ve reasonable cause to believe that the employer isn’t willing or able to pay the outstanding contributions
- you’ve completed your reminder and recovery process without obtaining the outstanding payment
- there is possible dishonesty or misuse of assets or contributions
- you become aware that the employer doesn’t have adequate procedures or systems in place to ensure the correct and timely payment of contributions, and the employer doesn’t appear to be taking adequate steps to remedy the situation
- there is an immediate risk to members’ benefits
- contributions have been outstanding for 90 days from the due date, unless it’s an infrequent administrative error that’s already been corrected or will be as soon as reasonably practicable
Section 75 debts
A section 75 debt is an amount payable by an employer when they cease to employ scheme members who are accruing benefits and exit that scheme. It can arise while the scheme remains open to benefit accrual for employees of other employers (if there is more than one employer in the scheme) or when the scheme is wound up.
A section 75 debt is a separate obligation from the obligation to make contributions under the regular schedule of contributions. You should not treat one payment as discharging both obligations.
Detailed guidance
Trustee Toolkit online learning
The ‘DB recovery plans, contributions and funding principles’ module contains information on setting contributions. You must log in or sign up to use the Trustee Toolkit.