Auto-Enrolment - What you Need to Know

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If wages are one of your biggest costs, pension auto-enrolment could mean a 3% increase in your wage costs in the next few years.

Hillyer McKeown Solicitors has teamed up with McLintocks Chartered Accountants to deliver a series of events explaining how to prepare for forthcoming auto-enrolment legislation. To view the presentation, please see the slideshow above.

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  • Now we’ll take a quick look at the basic facts about automatic enrolment and the employer duties. All of the information is based on our current understanding of the relevant legislation and regulations (including drafts) and may be subject to change.
  • This new legislation means that from October 2012, any UK employer who employs at least one person must register with The Pensions Regulator (TPR) and provide details of their workforce and any pension scheme which they’ll use to satisfy the employer duties. We’ll refer to The Pensions Regulator as TPR throughout the rest of this presentation.They’ll also need to automatically enrol some workers into the scheme and arrange membership of a pension scheme for others.
  • The employer duties will be introduced in stages from October 2012. The date your employer duties will first apply is known as your staging date and it’s based on the number of people in the your largest PAYE scheme on 1 April 2012.TPR will tell you when your staging date is twelve months before your staging date (18 months for larger employers) and send a reminder three months before your staging date.You can choose to bring your staging date forward to coincide with other key company dates such as your end of year accounting. There’s a list of available dates provided by TPR.
  • You’ll have separate duties for three different types of worker:eligible jobholdersnon-eligible jobholdersand entitled workers
  • The different categories of worker are determined by their age and how much they earn. Workers earning £5,668 or less, who are aged 16 – 74 are classed as entitled workers. Workers earning over £5,668 and up to £9,440, who are aged 16 – 74 are classed as non-eligible jobholders. Workers earning above £9,440, who are aged: 16 – 21 are classed as non-eligible jobholders. 22 - State pension age are classed as eligible jobholders. State pension age – 74 are classed as non-eligible jobholders.These figures are for the 2012/14 tax year.
  • For 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
  • 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.If the eligible jobholder is already in a qualifying pension scheme, you must provide certain information within two months
  • For 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 also: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 dateContinue to assess the non-eligible jobholder in case they change category depending on age and earnings
  • Keep records of the enrolment, opting in and opting out processes and provide to TPR if requestedIf the non-eligible jobholder is already in a qualifying pension scheme, you must provide certain information within two months
  • For 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.
  • You must also:- Continue to assess the non-eligible jobholder in case they change category depending on age and earnings- Keep records of the joining process and provide to TPR if requestedIf the entitled worker is already in a pension scheme run by you, you don’t have to provide them with any information
  • An automatic enrolment scheme must meet three sets of criteria – the automatic enrolment criteria, the qualifying criteria and the quality requirements. Automatic enrolment criteria To meet the automatic enrolment criteria, a UK scheme must: be a qualifying scheme – we’ll describe what this means in a moment it must not prevent the employer from automatically enrolling, opting in or re-enrolling a worker and it must not require a worker to provide information or make a choice in order to remain a member of the scheme. Qualifying criteriaTo meet the qualifying criteria, the scheme must: meet the quality requirements it must be an occupational, personal or stakeholder pension scheme and it must be tax registered.Quality requirementsThe quality requirements for personal stakeholder/pension schemes are: there must be an agreement between the scheme provider and the employer that the employer must make contributions of at least 3% of qualifying earnings in respect of the jobholder there must also be an agreement in place between the scheme provider and the jobholder where the jobholder can be required to make up any difference to 8% of qualifying earnings all the benefits payable must be ‘money purchase’ benefits and the employer must be able to deduct any jobholder contributions from net pay.
  • The minimum level required to meet the contribution quality requirement is based on what’s known as qualifying earnings. Qualifying earnings are a band of earnings of more than £5,668 and £41,450 or less. These are the figures for 2013/14 and are expected to change each year.Qualifying earnings includes:SalaryWagesOvertimeBonusesCommissionStatutory sick payStatutory maternity payOrdinary/additional statutory paternity payStatutory adoption pay.Source: The Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2012.
  • The minimum contribution levels will be phased in over six years from October 2012 (Source: Draft Regulations: - The Employers’ Duties  (Implementation) (Amendment) Regulations 2012 ). This table shows the minimum contributions payable by you and the worker from October 2012 up to October 2018.However you can choose contributions higher than the minimums.
  • As an alternative to using the qualifying earnings definition, you can choose to use certification. This means that you can base your contributions on the scheme’s definition of pensionable salary and contributions will be based on the first pound of pensionable salary. The certificate can cover all workers or groups of workers in your scheme.Again, the minimum contribution levels can be phased in over six years from October 2012.
  • The new employer duties are not optional. TPR will be responsible for ensuring that you comply with your employer duties. Their approach will be to educate and encourage compliance however, you would face substantial fines and even imprisonment if you fail to comply.There are three stages TPR will follow if employers fail to comply with their duties and these are detailed next.
  • Secondly, if you induce workers not to join or to opt out of a pension scheme, you’ll be subject to the three stage compliance process.
  • ‘NEST’ is merely a pension scheme that it being set up by the Personal Accounts Delivery Authority to ensure employers can comply with their duties where a suitable QWP/QQWP cannot be found on the market.Although much of the detail has yet to be confirmed, the various consultations can give us a reasonable idea of what the NEST scheme will look like.The NEST scheme will be similar to any other trust based occupational money purchase scheme in the UK but will have its own specific rules. It will be run by a Trustee Corporation. Employer and Employee panels will set up to represent the interests of these key stakeholders. It is not a state run pension scheme like S2P – it will be run by private companies and specifically not Government. Max contribution – set at £3,600 at the moment, subject to review – the review group recommends this should be removed in 2017.The Scheme will be able to accept ‘Cash Transfer Sums’. These are not ‘normal’ transfer values but are transfer values for members with more than 3 month’s service in an occupational pension scheme but less than 2 years service who elect to take such a transfer value instead of a refund or a paid-up benefit. No other transfers (other than OMO, see below) will be allowed. The transfer rule will be reviewed in 2017. – again the review group recommends that this should be rescinded and the current transfer regulatory regime reviewed to make it easier for people to transfer when they move jobs.Because of the way that the NEST scheme is being set up, there will be no trustee discretion when paying out death benefits. As such, this means that any death benefit payments will fall within the estate. Depending on the total value of the estate, this could therefore mean that the death benefits will be subject to Inheritance Tax. Normally, GPPs, GSHPs and occupational trust based schemes can pay the death benefits in line with trustee discretion, therefore making them IHT free.Bullets in italics represent our best current guess based on PADA consultations and industry reports only.There will be low cost default fund options. These may be target date funds. Ethical or religious funds may be available at extra cost to the saver.When a member reaches retirement, their choice will probably be restricted to Pension Commencement Lump Sum of 25% of the benefits value plus an annuity (possibly chosen from a panel) and/or an Open Market Option where more sophisticated decumulation options are required by the individual. In the case of small funds, these will be available as trivial lump sums within the normal limits - £18,000 including all other pensions.The charging structure has not yet been defined but we expect it to be low – possibly as low as 0.3% AMC plus a 2% contribution charge to repay the Government loan NEST will need to set itself up.
  • Contrast the Weatherspoon's case with the car dealership “nursery” comment case
  • Auto-Enrolment - What you Need to Know

    1. 1. Auto-Enrolment What You Need to Know Chester FC Wednesday 12th March – 8:00am - 10:00am
    2. 2. About Us Rachel HughesPaul McGerty Richard Landsberg Alison Hale
    3. 3. The Employer Duties Alison Hale Adviser at McLintocks Wealth Management Offering independent financial advice, specialising in the provision of pension and wealth management services for Individuals, Companies and Trusts
    4. 4. The Employer Duties A quick guide to automatic enrolment and the employer duties
    5. 5. The Employer Duties From 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
    6. 6. 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
    7. 7. The Employer Duties You’ll have separate duties for three different types of worker: Eligible jobholders Non-eligible jobholders Entitled workers
    8. 8. The Employer Duties The 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
    9. 9. 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
    10. 10. 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
    11. 11. 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
    12. 12. Employer duties: non-eligible jobholders 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
    13. 13. Employer duties: non-eligible jobholders 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
    14. 14. 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)
    15. 15. 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.
    16. 16. Automatic Enrolment Schemes These must meet 3 sets of criteria: • Automatic enrolment criteria • Qualifying criteria • Quality requirements
    17. 17. Qualifying Earnings The 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.
    18. 18. Qualifying Earnings The 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
    19. 19. 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
    20. 20. Pensions Regulator The 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
    21. 21. Inducement 4 The rules about inducement apply to all employers from 1 July 2012.
    22. 22. Options For Employers to be Compliant •NEST •Employer sponsored Auto-Enrolment Scheme •Payroll
    23. 23. ‘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.u k/nest-faqs.asp DWP/PADA, ‘Pensions - Consultation on draft scheme order and rules ‘ 28 April 2009. Money Marketing, “IHT risk makes personal accounts less attractive”, 3 November 2009.
    24. 24. Information All 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.
    25. 25. Auto-Enrolment The Administrative Burden Richard Landsberg ACA Manager McLintocks Chartered Accountants & Business Advisors
    26. 26. Auto-Enrolment The Administrative Burden • Preparation • Initial & ongoing assessment • Processing payroll • E-Payslips
    27. 27. Preparation • Preparation is key • Start planning 18 months in advance • Sage Pension Centre - Create personalised action plan - Deal with existing/new pension arrangements - Cost forecasting - Communication with employees - Progress tracking
    28. 28. The Pension Centre
    29. 29. Auto-Enrolment Action Plan
    30. 30. 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
    31. 31. 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
    32. 32. Pensions Module
    33. 33. Processing Payroll • Sending information to pension providers - Different formats - Automatically produce reports - Direct link to the leading providers • Processing payments to pension providers
    34. 34. 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
    35. 35. Auto-Enrolment Calculator Action Minutes Select employees, run report & check data 5 Manage postponement 12 Apply pension schemes to those enrolled 8 Manage opt in and opt outs 8 Export data reports from pension software 9 Consolidate data for pension provider report 20 Add fields not covered by payroll software 20 Check report & upload to pension provider 16 Letters to employees 48 Make pension payments 4 Deal with employee queries 40 Data issues with pension provider 40 TOTAL 230
    36. 36. 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
    37. 37. E-Payslips • Benefits to employer - Speed up delivery of payslips to employees - Securely send information to employees - Reduce costs
    38. 38. Summary • Prepare an action plan • Ongoing demands of auto-enrolment • The right software and experience is essential • Benefits of e-payslips
    39. 39. The Pension Problem Paul McGerty Director McLintocks Chartered Accountants & Business Advisors
    40. 40. 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!
    41. 41. The Pension Problem Just 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.
    42. 42. 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!!!
    43. 43. 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%.
    44. 44. 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!!!!
    45. 45. 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…
    46. 46. 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.
    47. 47. 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.
    48. 48. Managing Costs and Employees • 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
    49. 49. Managing Costs and Employees • 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!!!
    50. 50. 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
    51. 51. Managing Costs and Employees • 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 salary 1% employer pension contribution
    52. 52. Managing Costs and Employees • 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!!
    53. 53. 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
    54. 54. Our Employment Law Speakers Rachel is a Solicitor in our experienced Employment Law Team.
    55. 55. Pensions Enrolment - The Legal Part… Provision of Prescribed Information • Duty to provide specific information to the workers • Confirm their status, he date of enrolment, how much they need to contribute, the employer’s contribution, their right to opt out • Use a template letter
    56. 56. Pensions Enrolment - The Legal Part… 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
    57. 57. Employment Law Update
    58. 58. Employment Law Update Transfer of Undertakings – 31st January 2014 • Number of changes • Not as far reaching as had been envisaged, mainly technical/clarification points • Most significant is that a change of location post transfer of the buyer/new service provider means any redundancies are now potentially fair. • Micro businesses (less than 10 employees) don’t need to nominate representatives on tupe transfers
    59. 59. Employment Law Update Transfer of Undertakings – 1st May 2014 • Employee Liability Information deadline – increased from 14 days to 28 days
    60. 60. Employment Law Update Early Conciliation – 6th April 2014 • Applies to all Tribunal claims from 1 April • Conciliation between the Claimant and Respondent for one month
    61. 61. Employment Law Update How should employers deal with social media? • Fast paced changes in the law • Employers must review and amend their social media policy, grievance and bullying policies
    62. 62. What should a good social media policy contain? • Clear guidelines on whether an employee is entitled to post on social media on behalf of the business • What they are entitled to post on for work related matters i.e. Linked in – yes, Facebook – no • What type of posting is/is not acceptable • What would be considered misconduct and gross misconduct • What the consequences of such a breach may be
    63. 63. Thank You Any Questions? www.hillyermckeown.co.uk www.mclintocks.co.uk

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