Auto Enrolment: What You Need to Know

Auto-EnrolmentWhat You Need to KnowThe Heath Business & Technical ParkTuesday 3rd June – 10:00am-11:00am

About Us

Rachel HughesPaul McGerty

Richard Landsberg

The Employer Duties

Paul McGerty

DirectorMcLintocks Chartered Accountants & Business Advisors

The Employer Duties

A quick guide to automatic enrolment and the employer duties

The Employer DutiesFrom October 2012 every UK employer must:

• register with The Pensions Regulator (TPR) & provide details of workforce and pension scheme• automatically enrol certain workers• arrange membership of a pension scheme for other workers

The Employer Duties• The employer duties will be introduced in

stages from October 2012• The staging date is the date that your

employer duties first apply• It’s based on the number of people in your

largest Pay As You Earn (PAYE) scheme

The Employer DutiesYou’ll have separate duties for three different types of worker:

Eligiblejobholders

Non-eligiblejobholders

Entitledworkers

The Employer DutiesThe different categories of worker are determined by their age and how much they earn:

N.B. These figures are for the 2013/14 tax year

Employer Duties: Eligible Jobholders

You must:

• Provide certain information to the pension scheme and eligible jobholder• Automatically enrol them into an automatic enrolment

scheme• Deduct any jobholder contributions from salary and

make contributions on their behalf• Process any opt-out notices and refund contributions

paid

Employer Duties: Eligible Jobholders

You must also:

• Roughly every three years re-enrol those who have previously opted out, stopped making contributions or ceased membership more than 12 months before each re-enrolment date• Keep records of the automatic enrolment and opting out

processes and provide to TPR if requested• Provide certain information to the eligible jobholder within

two months if they’re already in a qualifying pension scheme

Employer duties: non-eligible jobholders

You must:

• Provide certain information to the non-eligible jobholder including their right to opt in to an automatic enrolment scheme• Arrange pension scheme membership• Deduct any jobholder contributions from salary and make

contributions on their behalf• Process any opt-out notices and refund contributions paid


You must:

• Re-assess worker type roughly every three years and re-enrol those who have previously opted out, stopped making contributions or ceased membership more than 12 months before each re-enrolment date• Continue to assess the non-eligible jobholder in case

they change category depending on age and earnings


You must also:

• Keep records of the enrolment, opting in and opting out processes and provide to TPR if requested• Provide certain information to the non-eligible

jobholder within two months if they’re already in a qualifying pension scheme

Employer duties – entitled workers

You must:

• Provide certain information about their right to join a pension scheme• Arrange pension scheme membership (the scheme

doesn’t have to be an automatic enrolment scheme)• Deduct contributions from their salary and pay

these into the scheme (you are not required to make contributions although you can choose to do so)

Employer duties – entitled workers

You must also:

• Continue to assess the entitled worker in case they change category depending on age and earnings• Keep records of the joining process and provide to

TPR if requested• If the entitled worked is already in a pension scheme

run by you, you don’t have to provide them with any information.

Automatic Enrolment Schemes

These must meet 3 sets of criteria:

• Automatic enrolment criteria• Qualifying criteria• Quality requirements

Qualifying EarningsThe minimum contribution level to meet the contribution quality requirement is based on qualifying earnings

Qualifying earnings are a band of earnings of more than £5,668 and

£41,450 or less2

2 These are the figures for 2013/14 and are expected to change each year.

Qualifying EarningsThe minimum contribution level can be phased in over six years:

Contribution rates required to meet the contribution quality requirement as a percentage of qualifying earnings 3

October 2012 to September 2017

October 2017 to September 2018

October 2018 onwards

2%

5%

8%

Employer must contribute at least

2%

3%

Date

1%

3 Agreement must be in place for jobholder to make up at least any difference between the total and the employer amount.

Total must be at least

Certification

You can certify that your scheme meets the quality requirement

The certificate can cover all workers or groups of workers

in your scheme

The minimum contribution levels for certification can be phased in over six years from October 2012

Pensions RegulatorThe Pensions Regulator will:

Tell employers when their staging

date is

Provide guidance and information about the

employer duties

Have the power to impose penalties on employers, including a fixed penalty notice of £400 & escalating penalties if you fail to comply

InducementInducement4

You must not: discourage workers from joining the scheme encourage workers to opt outIf you use inducement, you’ll be subject tothe three stage compliance process, which can lead to fines

4 The rules about inducement apply to all employers from 1 July 2012.

Options For Employers to be Compliant

•NEST• Employer sponsored Auto-Enrolment

Scheme•Payroll

‘NEST’• Trust based Defined Contribution

scheme • Maximum contribution £4,500

(2013/2014)• Limited investment choice• No transfers in or out• No trustee discretion on death• 0.3% amc plus 1.8% contribution

charge

Sources:Personal Accounts Delivery Authority, ‘Frequently asked questions about NEST’, http://www.padeliveryauthority.org.uk/nest-faqs.aspDWP/PADA, ‘Pensions - Consultation on draft scheme order and rules ‘ 28 April 2009.Money Marketing, “IHT risk makes personal accounts less attractive”, 3 November 2009.

InformationAll of the information is based on our current understanding of the relevant legislation and regulations (including drafts) and may be subject to change.

• McLintocks Wealth Management Limited is an appointed representative of Premier Pensions and Tax Consultancy Beech Court Business Center, Moss Brow, Lymm, Cheshire WA13 9TL is authorised and regulated by the Financial Services Authority. Under FCA Register number is 482631.

• Our permitted business is advising on and arranging investments.• You can check this on the FCA’s Register by visiting the FCA’s website

http://www.fca.org.uk/firms/systems-reporting/register/search or by contacting the FCA on 0800 111 6768.

Auto-EnrolmentThe Administrative Burden

Richard Landsberg ACA

ManagerMcLintocks Chartered Accountants & Business Advisors

Auto-EnrolmentThe Administrative Burden

• Preparation• Initial & ongoing assessment• Processing payroll• E-Payslips

Preparation

• Preparation is key• Start planning 12 months in advance• Sage Pension Centre

- Create personalised action plan- Deal with existing/new pension arrangements- Cost forecasting- Communication with employees- Progress tracking

The Pension Centre

Auto-Enrolment Action Plan

Initial & Ongoing Assessment

• Sage Pensions Module• Profile your workforce

- Status, age and earnings- Eligible/non-eligible jobholder or entitled

worker- Manage postponements

- Probation Period- Pay spikes

Initial & Ongoing Assessment

• Deal with opt-ins and opt-outs- Stop deducting contributions- Refund contributions already taken

• Triennial re-enrolment• Responsibility to assess workforce every pay run• Requirements to inform employees

Pensions Module

Processing Payroll

• Sending information to pension providers- Different formats- Automatically produce reports- Direct link to the leading providers

• Processing payments to pension providers

Processing Payroll

• Detailed audit trail- Record of all data and payment submissions- Store receipts from pension providers- Keep track of communications with

employees- Statutory requirement to keep records

• Time consuming process- Sage Auto-Enrolment Calculator

Auto-Enrolment CalculatorAction Minutes

Select employees, run report & check data 5Manage postponement 12Apply pension schemes to those enrolled 8Manage opt in and opt outs 8Export data reports from pension software 9Consolidate data for pension provider report 20Add fields not covered by payroll software 20Check report & upload to pension provider 16Letters to employees 48Make pension payments 4Deal with employee queries 40Data issues with pension provider 40TOTAL 230

E-Payslips

• Employees have access to online portal• Benefits to employee

- Access to payslips & documents in one place- 24/7 access from anywhere- Notifications

- Emails- Smartphone app

E-Payslips

• Benefits to employer- Speed up delivery of payslips to employees- Securely send information to employees- Reduce costs

Summary

• Prepare an action plan• Ongoing demands of auto-enrolment• The right software and experience is essential• Benefits of e-payslips

The Pension Problem

Paul McGerty

DirectorMcLintocks Chartered Accountants & Business Advisors

Overview• The Pension Problem – a few statistics to give a flavour of

the issues and the costs• A Recap on the Contributions• Managing the Costs & Employees –some suggestions• And finally don’t forget……Pensions are Good!

The Pension ProblemJust to give a flavour of the problem………

• The total liabilities of the UK Defined Benefit pension schemes now tops £1 trillion, with the deficit hitting £200 billion;

• Contributions to personal pensions have fallen by more than £1 billion in the tax years from 2009/10; and

• 430,000 fewer investors saved into a personal pension in 2009/10 compared to 2008/9 onwards. Among those who were saving, the average annual contribution fell from £945 to £886.

The Pension Problem• Pre- AE, a report from the Department for Work and Pensions shows

that only 27% of private sector workers belonged to a work-based pension scheme;

• The report showed that Stakeholder pensions were the most common type of workplace pension but that only one-fifth of employers providing them made a contribution towards them for their employees; and

• The above decline in pension saving highlights the importance of the auto-enrolment rules which arrived in 2012 - with the solution placed firmly at the employer’s feet!!!

A Recap on the Contributions

• A minimum of 8% of an employee's qualifying earnings must be paid into a pension, which is made up of:

- 3% employer contributions- 5% employee contributions, of which 1% comes in the

form of tax relief; and

• It is important to note that employers may choose to pay more than the minimum of 3%, in which case the compulsory 5% employee contribution will be lower, providing that the minimum combined pension contribution is 8%.

The Contributions

• The above could have a large cost implication for some employers, particularly small ones;

• A survey conducted by Watson Wyatt shows that the current average contribution for FTSE-100 companies is about 15%; and

• Most larger organisations will not have a problem - For smaller organisations the headline rate is much closer to the 8% figure and many put in less than that…if anything at all!!!!

Managing Costs and Employees

Some suggestions:

• One of the challenges that many employers face is how to balance the long-term affordability of their pension contributions with the needs of their staff;

• For some organisations, their current employer contribution levels may be unsustainable once the reform takes effect and all staff have to be auto-enrolled into a pension scheme;

• In the case of money purchase pension schemes employers have a number of options…

Managing Costs and Employees• Ring-fence existing higher contribution rates for all employees who

are currently members of the scheme and offer a lower employer contribution rate for those employees who join the scheme through auto-enrolment;

• This ensures that those employees who were members of the organisation’s pension scheme prior to auto-enrolment are not penalised, although this may cause disharmony among any employees who receive the lower employer contribution level who may feel that they are being disadvantaged.

Managing Costs and Employees• The other option is to level down employer contribution levels for

existing pension scheme members to a lower rate, which will be offered to all employees who join via auto-enrolment;

• Organisations wishing to go down this route will need to serve notice of their intention to reduce contribution levels and enter a consultation period with any affected staff and clearly legal advice is required

• While reducing contribution rates may help to balance the books, employees who are affected are likely to feel they are being unfairly penalised by a reduced monies going into their pension pot.


• It is also important to bear in mind that organisations that have to offer reduced contributions or the minimum 3% employer contribution rate may suffer a backlash from employees

• Employees will then need to contribute 5% (including 1% tax relief) of their salary (or band earnings where appropriate) into their pension


• This is unlikely to go down well with many employees who will see a reduction in their take-home pay.

• Employers will need to effectively manage staff’s perceptions around pensions as many may blame their employers for this change, regardless of the fact that it is actually a government requirement!!!

Managing Costs and Employees• One further option that employers may wish to consider to help to

manage any cost increases is the introduction of salary sacrifice.

• Via this method, employees elect to reduce their salary and have their sacrificed salary paid into their pension.

• As the employer will not have to pay National Insurance (NI) on the sacrificed salary, this contribution can be enhanced by redirecting the NI saving into the employee’s pension


• Organisations with no current pension scheme in place may wish to start giving a proportion of annual pay increases in the form of an employer pension contribution over the next 1,2 or 3 years, for example:

2% pay increase awarded to staff = 1% increase in employee’s salary1% employer pension contribution


• Whichever route employers choose to manage the likely cost of pension reform, a good communication strategy is essential to ensure that staff are aware of any changes and how this will affect them;

• It may also be sensible to work with an adviser to provide staff with access to financial advice and to support them with their individual retirement planning; and

• This helps with the ‘de-personalising’ of the changes also, i.e. reiterating the change is government enforced, not by the employer!!

Don’t forget…Pensions are Good!!!!There are numerous benefits in contributing to a pension scheme. For pension schemes registered with HM Revenue & Customs (HMRC), extensive tax relief is available:

• employees' contributions attract income tax relief;• employer's contributions qualify for corporation tax relief (where the

employer is a corporation). If the employer is unincorporated (for example partnerships) they may be subject to income tax relief

• scheme investments qualify for income tax and capital gains tax relief; and

• This makes pensions a tax-efficient way of increasing employee benefits and remuneration

Pensions Enrolment - The Legal Part…

Rachel is an Associate Solicitor in the Employment Department

at Hillyer McKeown.


Provision of Prescribed Information• Duty to provide specific information to the

workers• Confirm their status, the date of enrolment, how

much they need to contribute, the employer’s contribution, their right to opt out

• Use a template letter


Contractual Change• Amend contract of employment• Include the pension provider details and who

the employee can obtain information from• No requirement to obtain “consent” for the

change as it is a statutory requirement for eligible job holders


Fines• Failure to comply with your obligations could

lead to a fine of between £500 - £10,000 per day (failure to comply with statutory notice)

• Dependant on number of employees• Civil penalty for failure to pay contributions due

- up to £50,000 for organisations

Thank YouAny Questions?

www.hillyermckeown.co.uk www.mclintocks.co.uk