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...the clock is ticking
Automatic enrolment and
The Employer Duties
A presentation by Reward Consulting on how this could affect YOU
Michael Lacey T/A Reward Consulting is an Appointed Representative of Financial Limited and registered and authorised by the Financial Conduct
Authority. FCA Reference No. 589998
29 Crescent Road, Tilehurst, Reading, Berkshire RG31 5AH [email protected]
Why is it
happening?
What does
it mean for
you?
Key issues
How can you
prepare?
Why is it happening?
People are living longer
Not enough people are saving for retirement
The state can’t afford future pensioner benefits
People are living longer
14
21
25.9
18
23.7
28.3
1981 2010 2051
Historic and projected cohort life expectancy at
age 65 UK (years)
Men Women
Source: Office for National Statistics, Pension Trends Chapter 2 data tables, 16 February 2012.
Public sector
DB, 5.6
Private sector
DB, 2.4
DC*, 4
Unknown 0.14
No workplace
pension
provision
Active members of workplace pensions by type
of scheme in 2012 (millions)
Source: NAPF
*Includes trust based and group personal/stakeholder
11.7m
49%
Source: Office for National Statistics, Pension Trends Chapter 5, 27 October 2011.
84 92 97
142
196
250
2010/11 2015/16 2020/21 2030/31 2040/41 2050/51
Total projected expenditure on state pensions and
related benefits, 2011/11 to 2050/51
£billions, 2011/12 prices
The Employer Duties
The rules
Source: TPR – Workplace pension reform Detailed guidance
What are the duties?
Employers must:
Have a pension scheme
Auto enrol some employees and
Enrol other employees...
...into an ‘Automatic Enrolment Scheme’
Pay contributions
Source: TPR – Auto enrolment & your business An introduction to workplace changes
When will it happen?
April
2014
April
2015
June
2015
Aug
2015
Oct
2015
July
2012
Vo
lu
ntary
start
Oct
2012
Feb
2014
250 or
more
249
to 50
“Test tranche”
<30
49
to 30
<30
and no
PAYE
Apr
2017
New
employers
Apr 2012
to Sep
2017
May
2017
Feb
2018
Source: TPR – Staging date timeline
How much do I have to pay?
Defined Contribution – will be phased in to:
8% ‘Qualifying Earnings’ total
3% ‘Qualifying Earnings’ employer minimum
Jobholder can be required to make up the difference
‘Qualifying Earnings’
Between £5,772 - £41,865 (2014/2015)
Includes overtime, SSP, SMP etc
Source: TPR – Workplace pension reform “Contributions and funding”
Certification
A minimum of 9% contribution of pensionable pay
(including at least 4% employer contribution)
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
The ‘relevant quality requirement’ – at least 8% of QEs
Source: TPR - Workplace Pension reform Detailed guidance 4 “Pensions schemes”
Certification
Source: TPR - Workplace Pension reform Detailed guidance 4 “Pensions schemes”
Earn
ings
Total earnings
Band earnings
Pensionable earnings
<15%
>15%
Pensionable earnings
9% 8% 7% 8% Employers can use salary exchange
What if I can’t/don’t want to certify?
Entitlement check
Individual check on each worker
Contributions must be 8% of qualifying earnings or
higher
Details given in TPR guidance Number 4 Appendix E*
Source: TPR - Workplace Pension reform Detailed guidance 4 “Pensions schemes”
October
2018
October
2017
October
2012
Staging period
Qualifying earnings: Employer minimum 1%
Worker 1%
2%
3%
3%
5%
} 2% } 8% } 5%
7% certification: Employer minimum 1%
Worker 1%
2%
3%
3%
4%
} 2% } 7% } 5%
8% certification: Employer minimum 1%
Worker 1%
2%
3%
3%
5%
} 2% } 8% } 5%
9% certification: Employer minimum 2%
Worker 1%
3%
3%
4%
5%
} 3% } 9% } 6%
Phasing
Source: TPR - Workplace Pension reform Detailed guidance 4 “Pensions schemes”
Assessing the workforce Ea
rnin
gs a
t st
agin
g d
ate/
dat
e th
ey b
eco
me
elig
ible
Entitled Workers
Lower contribution threshold £5,7721
Qualifying threshold £10,0001
Upper contribution threshold £42,4751
Age at staging date/date they become eligible
Age 22 State Pension Age
Non-eligible jobholders
Non-eligible jobholders
Age 16
1 2014/15 tax year
Eligible jobholders
Non-eligible jobholders
Source: DWP - Automatic enrolment earnings thresholds review and revision 2013/14 , Government response, December 2012
8%
Earnings assessment
Ea
rnin
gs
Non-eligible jobholder
Eligible jobholder
Eligible jobholder
Lower qualifying earnings threshold £464
Entitled worker
Automatic enrolment trigger £676
Earnings must be continually assessed…
1 3 2 5 8 7 9 6 10 11 12 4 Month
Based on assessment date in the relevant pay reference
period:
Source: TPR – Workplace pension reform Detailed guidance 3 “Assessing the workforce”
Postponement
Earnings
1 3 2 5 8 7 9 6 10 11 12 4 Month
3 months max 3 months max 3 months max
Source: TPR – Workplace Pension reform Detailed guidance 3a “Postponement”
Date worker
first
assessed
Max 3 months
Joining window
Timeline – eligible jobholders
Max 1 month
Postponement
notice
Enrolment
Information
+
Terms and
conditions
Comms
Eligible jobholder
Max 1 month
Opt out Refund
Max 1 month Next pay
day
(or next
again)
Contributions deducted
3 years from
staging date
Source: TPR – Workplace pension reform Detailed guidance 6 and 7 “Opting in and opting out”
Admin duties
Employers 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
Source: TPR – Workplace pension reform Reporting and regulatory duties
Or else...
Compliance/unpaid contribution
notice Warning
Fixed penalty - £400 ‘Wake up call’
Escalating penalty
Workers Penalty per day
1-4 £50
5-49 £500
50-249 £2,500
250-499 £5,000
500+ £10,000
Persistent offenders
Source: TPR - Compliance and enforcement strategy For employers subject to automatic enrolment duties
Third parties
£400 fixed
£200 per day
escalating
Prohibited recruitment
conduct
Workers Fixed penalty
1-4 £1,000
5-49 £1,500
50-249 £2,500
250+ £5,000
Source: TPR - Compliance and enforcement strategy For employers subject to automatic enrolment duties
Doing nothing is not an option...
“A person guilty of an offence under this
section is liable -
a) on conviction on indictment, to
imprisonment for a term not
exceeding two years, or to a fine, or
both;
b) on summary conviction to a fine not
exceeding the statutory maximum.”
The Pensions Act 2008, Section
45(2)
“…there is a risk if we allowed employers
to say “we left it too late and it was
difficult”, it would set a precedent. We
cannot have that kind of excuse,”...
TPR spokesman
New Model Adviser 21/09/2012
Source: New Model Adviser “TPR shows no mercy as firms struggle with auto enrolment” 21 September 2012.
Choosing a pension scheme
Traditional providers New ‘supertrusts’
Scottish Life Standard Life Aviva Legal & general Scottish Widows
NEST NOW:Pensions The people’s pension
About NEST
What people think:
plus 1.8%
contribution charge
Government run
Cheaper than a private scheme
1 2012/13 terms
0.3% amc
One size fits all
Maximum contribution £4,4001
Limited investment choice
No transfers in or out
No trustee discretion on death
What it is:
Source: NEST – Key features
Employer Less admin
Added extras
Provider Adviser
Staff appreciation Competitive edge
Adviser Investment advice
Scheme design Auto-enrolment Certification
Ongoing reviews
Provider Investment options
Technical support Implementation support
Automatic enrolment solution Member communications
Hot topics
Who is a worker?
Contractual enrolment
Payroll
Car allowances etc
How can employers prepare?
Consider the costs:
Absorb the cost?
Increase prices/sales?
Review remuneration strategies?
Cut dividends?
Introduce ‘efficiencies’?
Consider the admin:
Who will do it all?
Will payroll cope?
Where will you get help?
Employer help?
Source: www.professionalpensions.com, “NEST warns small employers will not be ‘hand held’”, 30 October 2012
"Our research shows that…employers
with as few as one hundred staff - are
expecting help from NEST and other
providers…the fact is we won't be able to
and neither will any other provider.“
Roy Porter, NEST assistant director,
distribution
Employers required to register by staging date 50 or more people in PAYE scheme
(lower estimate)
Source: The Pensions Regulator, “Automatic enrolment: Staging profile and forecast volumes”, September 2012
2,000-2,999
160-89
Employers required to register by staging date 49 or less people in PAYE scheme
(lower estimate)
Source: The Pensions Regulator, “Automatic enrolment: Staging profile and forecast volumes”, September 2012
<30 140,000
Action plan
Start planning NOW – you are already doing so
Seek advice if you need it, e.g.:
Choice of pension scheme
The existing pension scheme if you have one
Payroll
Legal advice
All of the information is based on our current understanding of the relevant legislation and regulations (including drafts) and may be subject to change
Michael Lacey T/A Reward Consulting is an appointed representative of Financial Ltd., which is authorised & regulated by the Financial Conduct Authority (FCA) under number 188153. Reward Consulting (‘the Firm’) has an FCA number of 589998
