Transcript Mercer slides - auto enrolment, May 2012

DERBYSHIRE COUNTY COUNCIL PENSION FUND
EMPLOYERS’ FORUM: AUTO ENROLMENT
17 MAY 2012
Rob White BSc CertPFS
Senior Associate
Public Sector Advisory Services Team
Agenda
Key Employer duties
Identify staging date
Key areas to consider
Payroll & HR Systems
Practical example
Next steps - project overview
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Have you started to plan for Auto-enrolment?
A. Not familiar with the requirements
B. Not started yet
C. Yes, but only just started
D. Yes, progressing well
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Auto-enrolment
Summary of key employer duties
• Legislation introduces an employer duty to auto-enrol all eligible
jobholders into a qualifying pension scheme.
• To pay a minimum level of contribution on their behalf on qualifying
earnings between £5,564 and £42,475 (NI threshold 2012/13 terms).
• Auto-enrolment applies to jobholders between age 22 and State
Pension Age with earnings over £8,105 (level personal tax allowance
2012/13 terms).
• Jobholders can opt out, but must be re-enrolled every 3 years.
• Non eligible employees can choose to opt in and employer enrols.
• 3 month waiting period can apply.
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Auto-enrolment
Identify when your staging date is
Staging date for existing employers based on number of employees (by PAYE
scheme size), for example:
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10,000 – 19,999
by 1 March 2013
6,000 – 9,999
by 1 April 2013
4,100 – 5,999
by 1 May 2013
4,000 – 4,099
by 1 Jun 2013
3,000 – 3,999
by 1 Jul 2013
2,000 – 2,999
by 1 Aug 2013
1,250 – 1,999
by 1 Sep 2013
800 – 1,249
by 1 Oct 2013
50 – 249
by 1 Apr 2014 to 1 Apr 2015
30 – 49
by 1 Aug 2015 to 1 Oct 2015
< 30
by 1 Jan 2016 to 1 April 2017
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Auto-enrolment
What do employers have to do to comply with Auto-enrolment
•
Anticipate those employers using LGPS as auto-enrolment scheme
(e.g. scheduled bodies) can delay beyond their staging date until up to
2017 to auto-enrol existing opt-outs
•
But anticipate no delay for new employees eligible for LGPS
•
Identifying eligible jobholders may be a challenge for Employers
•
Casual employees could be affected if meet other eligibility requirements
(including possible 3 month waiting period)
•
Complications: agency & contract workers, seasonal staff, temps,
part-timers or changed hours
•
Discussions between LGA & DWP continuing over practicalities for LGPS
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Auto Enrolment
What happens if Employers do not comply?
• A compliance notice may be issued if employers fail to comply with their duties
e.g. failure to automatically enrol or failure to refund contributions to opt outs
• If the employer fails to comply with a compliance notice, TPR may issue a fixed
or escalating penalty notice.
• TPR can address serious or persistent non-compliance via criminal
prosecution.
• The fixed penalty for non-compliance with a notice is generally £400.
• Fixed penalties can be higher e.g. in relation to prohibited recruitment conduct
- penalty ranges from £1,000 for less than four persons on PAYE , to £5,000
for more than 250 persons.
• Escalating penalties - daily rate ranges from £50 for less than four persons, to
£10,000 for more than 500 persons.
• Employers also need to consider their record-keeping processes to ensure
compliance with the requirements. Failure to comply results in penalties under
Pensions Act 1995 – up to £5,000 for individuals, £50,000 for corporate bodies.
• In some cases … even jail !
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Overview of Auto Enrolment
Key areas to consider
Pension Scheme for Auto enrolment
Costs Considerations
Operational impact
Additional record keeping requirements
Communication
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For some employers a range of options for auto-enrolment scheme
Use existing
scheme
New scheme for new
employees and those
not currently in another
scheme
NEST
(National
Employment
Savings Trust)
• LGPS?
(Scheduled
bodies)
• Another existing
scheme - DB or
DC?
• Adjust to
accommodate
auto-enrolment
• Consolidate
existing
arrangements?
• Set up new DC
scheme (8% min cont
3% min from ER)
• Or packaged solution
• Broader workplace
savings solution
(pension, ISAs, cash
account) e.g. Mercer
Workplace Savings
• Difficult for smaller
employers to access
cost-effective solution
(mercer-elect, pooled)
• Minimum
compliance option
• Targeted mainly at
low earners
• Low contribution
limit means less
targeted at higher
earners
• NEST / DC not an
option for
Scheduled body
to auto-enrol into
Segment
workforce
• Different
solutions for
each
segment?
• Nursery
scheme
before feeds
into main
scheme?
• Flexibility?
• Complexity?
Will be driven by employer objectives and capacity to implement
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Overview of Auto Enrolment
Key areas to consider
Cost Considerations
• The introduction of Auto Enrolment will increase costs on employer.
Not just through increased employer pension contributions but:
 Increased administration costs
 Potentially more staff required – can your current teams cope
with an increase in workload?
 System costs – do your systems need updating or can the
existing system even be updated?
 One off projects costs for enrolling existing staff who are not a
member of your existing pension arrangements prior to or at
staging date
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Overview of Auto Enrolment
Key areas to consider
Operational impacts
• Co-ordinate staging date auto-enrolment & opt-out processes
• Ongoing eligibility monitoring / tracking
• Co-ordinate voluntary opt-in process
• Co-ordinate auto-re-enrolment & opt-out processes
• Provide records / liaise with Pension Fund
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Overview of Auto Enrolment
Key areas to consider
Additional record keeping requirements
• Records will have to be kept (6 years, or 4 years for opt-out
notices), and shown to TPR on request
• TPR will use these records to check employers have undertaken
enrolment and opt out correctly
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Overview of Auto Enrolment
Key areas to consider
Communication
• Those being auto-enrolled
• Those not being auto-enrolled
• Those already participating in a qualifying pension arrangement
• Those subject to waiting period
• Those subject to transitional period
• All subject to strict timescales
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Auto-enrolment
Impact on Payroll & HR Systems
Let’s focus on:
Impact on Payroll
Impact on HR systems
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Auto-enrolment
How to start – consider member treatment
• Automatic enrolment date is latest of the dates on which a job holder:
– Starts employment with the employer
– Reaches age 22
– Earnings reach the standard personal tax allowance (£8,105 in 2012/13)
– Possible 3 month waiting period
• Job holder is under age 22 but has qualifying earnings
– Can ask to join
– Employer must pay contributions
• Job holder is under qualifying earnings level
– Can ask to join
– Employer contributions are not payable
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Auto-enrolment
Practical example
John joins at 21
John reaches 22
John reaches 24
Declines
membership
Auto-enrolment communication
He wants to opt in
Payroll is updated
Contributions commence
Communications
issued
Pension scheme records updated
etc
John opts-out
Payroll is updated
Contributions cease; refund paid.
Diarise for re-enrolment dates
broadly every 3 years
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Auto-enrolment
Practical example
• HR send Payroll new joiner information
• Payroll calculates, deducts and submits contribution payment
• Usual contribution submission by 19th day of following month is eased by
the Auto-enrolment legislation
• Allows a process to be set up for holding onto contributions for members
during opt-out period up to end of 2nd month after auto-enrolment date
• Reconciling contributions – potential headache
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From what you’ve heard, what impact will compliance with
Auto-enrolment have on your existing HR & Payroll systems?
A. No change
B. Minimal change
C. Significant change
D. Don’t know
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Auto-enrolment
What else and what next
• Operational risk of auto enrolment
– Large numbers of employees to be enrolled at one point in time
– Brings risk to the employer and their pension arrangements
– Specific project needed to achieve a successful staging process
– Considerable revision of processes for steady state beyond staging date
• Opting out
– Employer must be removed from this process
– Brings risk of break down in communications
• Auto re-enrolment
– Employer duty
– Process to identify who needs to be re-enrolled and when
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Data hub / Middleware
Basic concept
Pension
e.g. LGPS
Pension
e.g. Teachers
Employer’s
HR & Payroll
Data
Hub
Pension
e.g. USS
Pension e.g. Defined
Contribution
Pension
e.g. NEST
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Auto Enrolment
Summary
• Significant exercise
– typically expected to take around 12 to 18 months, so need to start now
– will require strong project management skills & pressure on resource
• Something all employers need to address – Payroll Providers will not solve all issues
• Set up a working party from Finance, HR, Payroll & Pensions teams responsible for
driving through the required changes
• External advice and experience available to help support working party
• Set up Project Plan to manage auto-enrolment process
• Identify those areas to be addressed where have internal expertise/capacity & those
areas where external help needed
• Assess estimated costs of changes and extra employer contributions
• Make allowance in budget for these additional costs
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5 Step Planning Process - Auto enrolment project overview
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Any questions ….
Contact Details:
Rob White 0151 242 7310
[email protected]
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Appendices
Auto-enrolment
Terminology
A worker is an employee of the employer (including contract and agency
workers)
A jobholder is a worker who ordinarily works in the UK, is between
16 and 75 years of age and is paid qualifying earnings in relation to a
particular employment
Qualifying earnings are earnings between £5,715 p.a. and £42,475 p.a.
(in 2012/13 terms) for annual pay reference periods
A qualifying scheme is a scheme that meets certain minimum
requirements in respect of contributions or benefits provided
An automatic enrolment scheme is a qualifying scheme that meets
additional requirements for automatic enrolment to occur
The staging date for each employer is set out in legislation and is based
on employer size, as measured by the number of employees on the
PAYE payroll
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Auto-enrolment
Practical example – Items to be communicated to employees
• What is auto-enrolment and why happening?
• Date employee will be affected
• Scheme contact details
• Employee and employer contributions by pay reference period
– and that Employee contributions will be deducted from pay
• Employer responsibility to maintain membership of auto-enrolment scheme
• Right to opt out during the opt out period as if never joined scheme
– the start and end date of the opt out period
• Source of opt out form (not from employer) and factual implications of
opting out (legislation prevents employer from encouraging opt-out)
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Auto-enrolment
Practical implications – Items to be communicated to employees (Contd)
• Refund of contributions
• Right to opt in again
• Option to opt out even after the opt out period (treated as a scheme leaver)
• Notification of auto re-enrolment
• Tax treatment
• Contact for further information
• And anything scheme specific…
– Scheme booklet
– Nomination forms
– Additional Voluntary Contributions
– And so on……
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Presentation
This presentation has been prepared for the purpose of providing an update to employers
participating in the Derbyshire County Council Pension Fund in relation to the Local
Government Pension Scheme. We do not accept liability to any third party in respect of this
information; nor do we accept liability if this presentation is used for any purpose other than
that stated.
This presentation contains confidential and proprietary information of Mercer Limited
(“Mercer”) and is intended for the use of Mercer and our clients. The report may not be
modified, sold, or otherwise provided, in whole or in part, to any other person or entity
without Mercer’s written permission.
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