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Here's a copy of our presentation from the free breakfast briefing we held in January 2014. Auto Enrolment is mandatory legislation to all companies in the UK, starting from October 2012. If you have questions that need answering or would like us to help you with this process, please get in touch. 01302 341 344.
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Automatic Enrolment
Supporting youevery step of the way
Creating a road map for your business
John Carter DipPFS
Roadmap
•Background – Why Auto Enrolment•Employer Duties•Contribution options•Admin Duties•Middleware•Staff Communication
Why Auto Enrolment?
1981 2010 2051
1421
25.918
23.728.3
Historic and projected life expectancy at age 65 UK (years)
Men Women
Source: Office for National Statistics, Pension Trends Chapter 2, 16 February 2012.
People are living longer
2010/11 2015/16 2020/21 2030/31 2040/41 2050/51
84 92 97142
196250
Total projected expenditure on state pensions and re-lated benefits, 2011/11 to 2050/51
£billions, 2011/12 prices
Source: Office for National Statistics, Pension Trends Chapter 5, 27 October 2011.
It’s unaffordable
Inflated Retirement Expectations
• Basic State Pension is currently?
£110.15 per week (£5727.80 pa)
• For a £20K Personal Pension income
(Start Saving at 40)?
£799 per month
* assuming 7% growth and current annuity rates
Employer Duties
Employer Duties
• Implement an Auto Enrolment compliant pension scheme
• By the staging date set by the DWP
• Maintain the scheme in accordance with applicable legislation
EASY!!
The Rules
Assessing worker type
The different types of worker
Age (inclusive)
Earnings16 - 21 22 – SPA SPA - 74
Under lower qualifying earnings threshold - £5,668 or less
Entitled worker – can join
More than £5,668 up to £9,440 Non-eligible jobholder – can opt-in
Over automatic enrolment earnings trigger - £9,440 (up to £41,451 for band earnings)
Non-eligible jobholder – can
opt in
Eligible jobholderAUTOMATIC ENROLMENT
Non-eligible jobholder – can
opt in
* Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2012
11,000,000
Employees
1,200,000
Employers
When will it happen?
April2014
April2015
June2015
Aug2015
Oct2015
July 2012
Volu
ntar
y st
art
Oct2012
Feb 2014
250 or more 249to 50
“Test tranche”<30
49 to 30
<30 and no PAYE
Jan2016
Apr 2017
New employers
Apr 2012 to Sep 2017
May2017
Feb2018
It’s OK, I can wait until my staging date!
• Provider ability to respond?
• Availability of advice?
• Budget Planning?
• Timeframe for set-up
Capacity Crunch
Staging profile to May 2015
Source: payrollworld.com
Source: TPR / PW
And in real numbers ……..
Contribution Options& Scheme Design
Contribution options?
Defined Contribution – will be phased in to:
8% ‘Banded Earnings’ total
3% ‘Banded Earnings’ employer minimum
Jobholder can be required to make up the difference
‘Qualifying Earnings’
Between £5,668 - £41,450*
Includes overtime, SSP, SMP etc
* Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2012
Band Earnings Earnings thresholds:
0
£9,4401
£5,6681
£41,4501
Earn
ings
£
Not auto-enrolled
Contributions paid
Source: Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2012
Phasing
This is for the default “banded earnings” certification. Other certifications will vary.
Contractual entitlements are not considered in this example.
Source: Making automatic enrolment work, Report for the DWP October 2010
Transitional Duration Employer min Employee Total min
Period contribution Pays contribution
Phase 1 Employer's staging date 1% 1% 2%
to 30 September 2017
Phase 2 1 October 2017 to 2% 3% 5%
30th September 2018
1 October 2018 onwards On-going 3% 5% 8%
Contribution options3 additional certification options:
A minimum of 9% contribution of pensionable pay (including at least 4% employer contribution)
Source: Making automatic enrolment work, Report for the DWP October 2010
A minimum 8% of pensionable pay (3% employer) provided pensionable pay constitutes at least 85% of the total pay bill
A minimum 7% contribution of earnings (3% employer), provided that 100% of total pay is pensionable
OR
• “Qualifying Scheme” - The scheme already meets all of the AE requirements
Contribution options
0
£9,440
£5,668
£41,450
Earn
ings
£
8%
£50,000 Total earnings
Basic earnings
7% 9%8%
Basic earnings<15%
>15%
• 3 acceptable definitions:
CAN USE SALARY EXCHANGE
1. If the definition of pensionable pay is total earnings then a 7% contribution rate is acceptable2. If total pensionable earnings equate to at least 85% of the total wage bill, then 8% is acceptable3. If pensionable earnings are less than 85% of total earnings then a 9% contribution is acceptable
DEFAULT 1 2 3
Salary Exchange/Sacrifice
Pension Exchange Amount £147.06
Employer’s NI Saving £20.29
Total Invested ??????
£100 net employee contribution
Pension Exchange Amount £172.41
Employer’s NI Saving £23.79
Total Invested ??????
Basic Rate
Higher Rate
Potential Savings could offset the costs …………
30 employees @ £20.29 NI saving per month
Monthly Payroll Saving = £608.70
Annual Payroll Saving = £7304.40
SeeGeneral Staff
Generic Provider (People’s Pension / NEST/Insurer)
8% Banded Earnings
Senior Managers
GPP7% Total
Pay
Sales PeopleGeneric Provider
9% Basic Pay
Directors
SEGMENTATION
Admin Duties
Admin dutiesEmployers MUST Employers MUST NOT
Auto enrol and re-enrol/deduct payments
Register/re-register their scheme
Provide information to eligible and non-eligible jobholders Provide information to scheme/provider
Process opt outs/make refunds
Keep records
Discourage membership
Give jobholders the opt-out form
Encourage opt-outs
Use ‘Prohibited recruitment conduct’
Give advice
Sources: Pensions Act 2008, The Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010.
Or else...
Compliance/unpaid contribution noticeStage 1 - Warning
Fixed penalty - £400Stage 2 – ‘Wake up call’
Escalating penalty
Workers Penalty per day1-4 £505-49 £50050-249 £2,500250-499 £5,000500+ £10,000
Stage 3 – Persistent offenders
Sources: Pensions Act 2008, Chapter 2, The Occupational and Personal Pension Schemes(Automatic Enrolment) Regulations 2010.
For professional advisers only
11 Months in and changes already ………..
• Aligning assessment pay reference period with tax periods (RTI?)
• Defining pay reference periods for quality assessment
• Consistency of contribution payment deadlines for all joiners
• Jobholders opting out “before” Auto Enrolment
• Clarification of the opt-out notice, and extension of the joining window
• Test scheme standard for DB schemes, and quality requirements
• Exclusion of certain workers from Auto Enrolment
• “Other possible options” for employers with “good” pension schemes
Middleware
Integrated software to interface with;• Payroll• HR• Pension provider• Employees
Middleware
Purpose to assess in each payment period eligible employees, notify new auto-enrolment joiners by age, salary, new starters, staff that have opted out and need re-enrolling after 3 years etc.
Middleware Platform
Pension
Payroll
Employees
HR
New Joiner Data Contribution Data
Opt Out Indicators
New HiresRe-Joiners
Salary Data
DeductionsSalary Sacrifice
Scheme Decisions
Opt-OutRe-join
ValuationsUpdates
Option 3
• Bespoke Package
• Auto Enrolment Middleware
• Staff Intranet
• Scheme Segmentation
• Full Reporting
• Online Payslips
• Lifestyle Benefits
Option 2
• Bespoke Package
• Auto Enrolment Middleware
• Staff Intranet
• Scheme Segmentation
• Full Reporting
Option 1
• Generic Package
• Insurer Supplied
• Basic AE Middleware
MIDDLEWARE CHOICES
OPTION 1
• Bespoke Offering
• Auto Enrolment Integration and Management
• Full Employee Benefits Package
• Online Payslips
• Staff Intranet
• Lifestyle Benefits
OPTION 2
• Bespoke Offering
• Auto Enrolment Integration and Management
• Staff Intranet
OPTION 3
• Generic Offering
• Insurer Supplied
• Auto Enrolment Integration and Management
• Tied to Insurer and potentially dependent upon segmentation
RANGE OF SOLUTIONS
Communication
Communication!
• Implementers– Payroll/Management/HR/Finance etc
• Employees– Surgeries / One to Ones – Member packs– Reviews / Retirement Advice
• Insurer/schemes
Source: TPR
Official Suggested Timelines
Summary
Step 1 – Design a solution for your
business
Step 2 – Implement the changes effectively
Step 3 – Run the scheme in the most efficient way
2,000 – 2,999 members
1st August 2013
1,250 – 1,999 members
1st September 2013
800 – 1,249 members
1st October 2013
500 – 799 members
1st November 2013
350 – 499 members
1st January 2014
250 – 349 members
1st February 2014
From (inc.) To (inc.)
50 to 249 members 1st April 2014 1st April 2015
Test tranche for less than 30 members 1st June 2015 30th June 2015
30 to 49 members 1st August 2015 1st October 2015
Less than 30 members 1st January 2016 1st April 2017
Staging Dates
@ProaktivePeggy
@ProaktivePeople
John Carter
ProAktive
Updates and Social Media
ProAktive HouseSidings CourtWhite Rose WayDoncasterDN4 5NU01302 341344John Carter 07725 258283johncarter@proaktive.co.uk
Proaktive is a trading name of Atkinson Smith (Financial Services) Ltd. Authorised and Regulated by the FCA
Any Questions?
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