Transcript Slide 1

Automatic enrolment planning
FINANCIAL PLANNING
APRIL 2014
CONTENTS
SLIDES 3-6
WHAT IS AUTOMATIC ENROLMENT
SLIDES 8&9
AUTOMATIC ENROLMENT PLANNING
SLIDES 11-49
PREPARATION
SLIDES 51-53
MOVING ON – EXISTING SCHEMES
2
What is Automatic enrolment
•Following declining rate of retirement saving, the government introduced a
requirement for employers to put employees into a scheme without their
consent – automatic enrolment
•When? – determined by number of employees in largest PAYE scheme as at
1.4.12; takes place at a defined ‘staging date’ from Oct 2012 to Apr 2017
•‘New’ employers staging date between May 2017 and February 2018
•The Pensions Regulator (TPR) will write to client 12 months before Staging
Date
•Who? – All staff working in the UK aged 22+ to State Pensions Age earning
over £10,000 (2014/15) but others may be able to elect to join
•Minimum Contributions based on “Qualifying Earnings” between £5, 772 £41,865 (2014/15)
What is Automatic enrolment
•Minimum contributions paid by employer and possibly employee;
Period
Minimum Employer
Minimum Total
Staging Date to 30.9.17
1%
2%
1.10.17 to 30.9.18
2%
5%
1.10.18 Onwards
3%
8%
Example
26 year old employee on £20,000
Minimum Employer contribution now (£20000-£5772) x 1% = £142.28
Minimum total contribution now (£20000-£5772) x 2% = £284.56
Therefore employee could be required to pay the additional £142.28 or the employer
could offer to pay some portion of it
What is Automatic enrolment
•Employees can opt-out but must be re-enrolled every 3 years
•Employers will be required to keep records of processes and contributions
for up to 6 years
•New rules introduced from 1.4.12 regarding discrimination against
employees who are scheme members or who intend to join schemes
What is Automatic enrolment
•The Pensions Regulator pension reform page
http://www.thepensionsregulator.gov.uk/automatic-enrolment.aspx
•“Detailed Guidance” Rules published by The Pensions Regulator –
http://www.thepensionsregulator.gov.uk/employers/detailed-guidance.aspx
•Scottish Widows Financial Planning team
http://www.scottishwidows.co.uk/extranet/financial-planning/pensionplanning/nest-automatic-enrolment
•Includes a range of ‘bite-sized’ factsheets
Automatic enrolment planning
Planning can begin
7
The Plan
Identify areas where
clarification is required &
data prepared
1 Year before Staging
Date
Time required to do this
ahead of Staging Date
(This presentation)
Formal government
Notification of Staging Date
The Plan
Staging Date
Review
Auto enrol staff and
Register compliance
Check suitability of
Solution in future
years
Automatic enrolment planning
Planning can begin
10
Preparation
• Identify “Workers”
Identify issues around defining ‘workers’
Most staff will be straightforward but problem areas need addressing;
• Overseas staff working in the UK
• UK staff working abroad
• Agency staff
• Casuals
• “Zero Hours” Contracts
• Volunteers receiving benefits
• Secondees
• Carers/Nannies
• Consultants
• Independent Contractors
Why is this important?
Need to establish who employer is responsible for:
• May need time to resolve issues (possibly legally)
• Ensure clarity is established for the future i.e. the situation is clear &
recorded for new employees
• Possible effects on recruitment of staff in future and in particular the cost
thereof
• Will Contracts of Employment need to be modified?
Where to find help
•Scottish Widows Automatic Enrolment Fact Sheet 7: Workers
•The Pensions Regulator – Detailed Guidance Module 1: Employer duties
and defining the workforce
Preparation
• Identify workers
• Identify ‘legal’ employer
Identify employer
Should be straightforward but could be complicated by:
“Groups” of companies
Subsidiary/Associate firms
Why do employers need to do this now?
•Could take time to be resolved
•Ensure clarity going forward (particularly in the case of takeovers/mergers/sales)
•Ensure each legal identity of employer is aware of requirements
Preparation
• Identify workers
• Identify ‘legal’ employer
•Identify PAYE Schemes in force
Identify PAYE schemes
Should be straightforward but could be complicated by:
•Industry-wide/multiple employer arrangements
•“Workers” not in PAYE scheme
Why do employers need to do this now?
•Staging Date will be determined by Employees per PAYE scheme as at
1.4.12 – HMRC will assume it’s as per their returns – might not be!
•Resolve issues & ensure clarity going forward
•Small employers (<50 workers) in a big PAYE scheme may wish to defer
staging date
Where to find help
•Scottish Widows Automatic Enrolment Fact Sheet 6: Groups of
employers/company structure
•The Pensions Regulator – Detailed Guidance Module 2: Getting ready
Preparation
• Identify workers
• Identify ‘legal’ employer
•Identify PAYE Schemes in force
•Identify “Worker” categories
Worker categories
Workers
Jobholders
Entitled
Workers
Eligible
Jobholders
Non Eligible
Jobholders
Worker contribution rules
“Worker”
Age
Earnings
Eligible Jobholder
22-State Pension Age
> £10,000 (2014/15)
Non Eligible Jobholder
16 to 74
£5,772 to £10,000 (2014/15)
Non Eligible Jobholder
16 to 21 & SPA-74
> £10,000 (2014/15)
Entitled Worker
16 to 74
< £5,772 (2014/15)
Worker contribution rules
“Worker”
Employer Contribution
Qualification
Eligible Jobholder
Yes
Must be Auto enrolled
Non Eligible Jobholder
Yes
If they volunteer to join
Employer has to provide access to a scheme
Entitled Worker
No
but no compulsory employer contribution
Possible problems
HR data of sufficient quality to meet requirements
Can be complex and records may not include;
•Age/date of birth
•State Pension Age
•Ability to identify “Gross earnings in Pay Reference Period” to meet
requirements
•Most automatic systems will require all HR & Payroll records to be centrally
held on one computer for all data required
•Employees with highly fluctuating earnings will cause issues
Why do employers need to do this now?
Will enable the first accurate assessment of the costs involved to be made:
May impact on future business contracts & prices
Bear in mind for future pay settlements
Area is complex. Important for employers to understand to be able to grasp
the potential admin issues for the future. Will help in planning:
Future HR systems/procedures
Payroll enhancements which could help process
May affect future recruitment of staff
Identify issues with current record keeping and give time to resolve
Where to find help
•Scottish Widows Automatic Enrolment Fact Sheet 9: Assessing Workers
•The Pensions Regulator – Detailed Guidance Module 3: Assessing the
workforce
Postponement
•Employers may consider using ‘postponement’
•Postponement allows an employer to delay automatic enrolment duties by
up to 3 months
•May be useful for cases involving short-term employees, fluctuating
earnings, aligning with pay reference periods
•Or for introducing salary exchange or contractual enrolment arrangements
•Jobholders can opt in during postponement
Where to find help
•Scottish Widows Automatic Enrolment Fact Sheet 3: Postponement
•The Pensions Regulator – Detailed Guidance Module 3a: Postponement
Preparation
Identify workers
Identify ‘legal’ employer
Identify PAYE Schemes in force
Identify “Worker” categories
Choosing an automatic enrolment scheme
What scheme can be used for Automatic enrolment
•Employer must choose a suitable scheme for their employees:
Could be existing scheme as long as it meets certain criteria –
“Qualifying Scheme”
•Government have set up “National Employment Savings Trust” aka NEST
with public service obligation to take any and all auto enrolment scenarios if
employers wish.
Maximum total contribution per member £4,600 (increased annually)
No transfers in or out before 2017
•There are other “mass market” solutions on offer e.g. B&CE’s “The
People’s Pension”.
•Employers have to register with TPR to demonstrate how they’ve met
automatic enrolment requirements, provide scheme info etc within 5
months of staging.
What scheme can be used for Automatic enrolment
•Employer must choose suitable scheme for their employees
•Employer doesn’t have to choose just one – can mix and match for their
needs and those of employees
•This is often called ‘segmentation’
•May be driven by a range of criteria e.g. job, grade, contributions, charges or
other employer/employee defined criteria
•Must not be discriminatory on grounds of age, sex etc
•In practice, employer will need to be able to justify decision; MEMBER
OUTCOME will be key measure
What scheme can be used for Automatic enrolment
•Employer must choose suitable scheme for their employees
•Scheme contributions can be based on 8% of ‘qualifying earnings’ - £5,772 £41,865 (2014/15)
•Or employers can certify that scheme meets one of the alternative bases to
qualify:
Pensionable Pay
Minimum
Minimum
Definition
Employer %
Total %
Set 1
Basic Pay
4
9
Set 2
Pensionable pay >
3
8
3
7
85% of Total Pay
Set 3
Total Earnings
Where to find help
•Scottish Widows Automatic Enrolment Fact Sheet 4: Alternative contribution
bases
•Scottish Widows Automatic Enrolment Fact Sheet 5: Using salary exchange
with automatic enrolment
•The Pensions Regulator – Detailed Guidance Module 4: Pension schemes
The automatic enrolment process
Mandatory time limits – six weeks joining ‘window’
Disclosure of information
About being enrolled to a pension scheme
Rights to opt out and opt in
Agreements in place between employer, provider and jobholder
Calculation and payment of contributions
Where to find help
•The Pensions Regulator – Detailed Guidance Module 5: Automatic
enrolment
Opt ins and contractual enrolment
•Non-eligible jobholders have opt in rights
•Entitled workers have a right to join
•Derived from information given at staging date or date of joining (if later)
•Contractual enrolment
Enrolment to a qualifying scheme under contract of employment
No opt out rights except under scheme rules
Where to find help
•Scottish Widows Automatic Enrolment Fact Sheet 8: Opting in and joining
•The Pensions Regulator – Detailed Guidance Module 6: Opting in, joining
and contractual enrolment
Opt outs
•Jobholders have opt out rights
•The opt out period is one month from the later of membership starting and
receiving enrolment information
•Need to complete opt out notice (sent by pension scheme)
•Process refunds – scheme to employer, employer to jobholder
Opt outs
•No right to refund outside one month except under occupational scheme
rules
•Jobholders can opt to pay lower than minimum contributions if employer
agrees
•Eligible jobholders who opt out, cease active membership or pay below
minimum contributions have to be re re-enrolled every three years
•Need to keep records of opt outs
Where to find help
•Scottish Widows Automatic Enrolment Fact Sheet 2: Opting out
•Scottish Widows Automatic Enrolment Fact Sheet 10: Re-enrolment
•The Pensions Regulator – Detailed Guidance Module 7: Opting out
•The Pensions Regulator – Detailed Guidance Module 11: Automatic
Re-enrolment
Preparation
Identify workers
Identify ‘legal’ employer
Identify PAYE Schemes in force
Identify “Worker” categories
Choosing an automatic enrolment scheme
Safeguarding Individuals
What are ‘safeguarding rules’?
Employer must not take any action to induce members to opt out of scheme
or discriminate against staff who are scheme members
This includes;
•Altering any existing “Qualifying Scheme” that makes it unable to “Qualify”
(without making alternative provision).
•Screen job applicants on their intention/non intention of joining the pension
scheme including;
Questions at interview
Questions on application forms
Conditional job offers
Seeking information from Referees on past scheme
membership
•Dismiss or treat unfairly employee on grounds of scheme membership
(including refusal to promote on grounds of scheme membership)
Why consider this now?
There will be legal sanctions for doing this incorrectly – could cause problems
at industrial tribunals too.
Employers should:
•Review recruitment procedures/forms to ensure compliance
•Ensure all management involved in recruitment/promotional activities are
aware of the requirements
Where to find help
•The Pensions Regulator – Detailed Guidance Module 8: Safeguarding
individuals
Preparation
Identify workers
Identify ‘legal’ employer
Identify PAYE Schemes in force
Identify “Worker” categories
Choosing an automatic enrolment scheme
Safeguarding Individuals
Record keeping
Record keeping
•New legal requirements on record keeping covering compliance with
automatic enrolment duties
•Available to TPR on demand
•Records cover individual jobholders and workers and the pension scheme(s)
used
•Must be kept for six years
•Employers should ensure they have robust record keeping procedures
•Many pension providers will provide software to help employers meet the
requirements
Where to find help
•Scottish Widows Automatic Enrolment Fact Sheet 13: Record keeping
requirements
•The Pensions Regulator – Detailed Guidance Module 9: Keeping records
Preparation
Identify workers
Identify ‘legal’ employer
Identify PAYE Schemes in force
Identify “Worker” categories
Choosing an automatic enrolment scheme
Safeguarding Individuals
Record keeping
General business considerations
General business implications/things to watch out for
•Take-overs/mergers
Could affect Staging Date, bringing it forward with resulting staff cost
implications
•Increasing/decreasing employee hours
May have disproportionate staff cost implications if moving “Worker
Category”
•Cutting back staff – need to bear in mind increase in HR/Payroll duties on
the horizon
•Those with Enhanced or Fixed Protection must be made aware that they
should opt-out after automatic enrolment
Moving on
Effect on existing scheme going
forward
50
Existing scheme implications
•Likely that all existing scheme members at very least will continue as at
present.
•But scheme will need to “Qualify” and will therefore need to address;
Contribution levels (particularly minimum amounts to meet
requirements). Some members could need to increase contribution levels
– particularly schemes where employer “matches up to…”
•Salary definitions may need altering
Key area; any definition less than “P60 Earnings”
care will need to make sure minimum contributions are paid
•Introduce better Governance of Scheme particularly in the areas of: Record
Keeping, Asset Protection & Reviews
•Measure of suitability of employer choice must be MEMBER OUTCOME
Existing scheme implications
Other “Existing Scheme” areas which may need addressing:
•Eligibility rules (dependent on the solution adopted)
•Introduce Salary Exchange to mitigate increase in costs
•Promote scheme to staff now to avoid perception of staff that employer is
just being forced into doing it and/or cut down work at Staging Date
•Review contribution levels to maintain competitive recruitment edge (if all
employers offer the same “NEST” contributions do you need to increase
contributions to maintain goal of being an attractive employment prospect?)
•Tidying-up other schemes which will not be used as ongoing vehicles to:
Reduce net increase in Admin caused by auto enrolment
Reduce employer liabilities
Give some clarity going forward
Existing scheme implications
•Non qualifying schemes and individual arrangements can continue but
employee must be auto enrolled into an automatic enrolment scheme to fulfil
the employers statutory duties. And the employee may not choose to opt out!
•Individual arrangements can be made “Qualifying” but bearing in mind
formal registration, contractual and governance issues, may not be an
attractive option
•Planning in advance may help employers to streamline and rationalise
complex existing arrangements
•Employee consultation is strongly recommended before implementing any
changes to existing schemes (compulsory for 50+ employees)
•Employee cooperation and agreement to fair and reasonable change for the
benefit of all, must be the objective of employers and advisers
Automatic enrolment planning
Need to start planning now to avoid
issues in the future
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Every care has been taken to ensure that this information is correct and
in accordance with our understanding of the law and HMRC practice,
which may change.
However, independent confirmation should be obtained before acting or
refraining from acting in reliance upon the information given.
Scottish Widows plc. Registered in Scotland No. 199549. Registered
Office in the United Kingdom at 69 Morrison Street, Edinburgh EH3 8YF.
Telephone: 0131 655 6000. Authorised by the Prudential Regulation
Authority and regulated by the Financial Conduct Authority and the
Prudential Regulation Authority. Financial Services Register number
191517.
FP0382
Scottish Widows plc. Registered in Scotland No. 199549. Registered Office in the United Kingdom at 69 Morrison Street, Edinburgh EH3 8YF. Telephone: 0131 655 6000. Authorised by the
Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 191517.