Thank-you for attending our Auto-Enrolment Roadshow brought to you by Hillyer McKeown Solicitors and McLintocks Accountants. We've uploaded the slides from the event for you to read and download.
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
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. 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. The Employer Duties
You’ll have separate duties for three different types of
worker:
Eligible
jobholders
Non-eligible
jobholders
Entitled
workers
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. 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. 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. 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. 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. 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. 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. 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. Automatic Enrolment Schemes
These must meet 3 sets of criteria:
• Automatic enrolment criteria
• Qualifying criteria
• Quality requirements
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. 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. 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. 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
22. Options For Employers to
be Compliant
•NEST
•Employer sponsored Auto-Enrolment
Scheme
•Payroll
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. 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.
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. 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. 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. 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. E-Payslips
• Benefits to employer
- Speed up delivery of payslips to employees
- Securely send information to employees
- Reduce costs
38. Summary
• Prepare an action plan
• Ongoing demands of auto-enrolment
• The right software and experience is essential
• Benefits of e-payslips
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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Pensions Enrolment - The Legal
Part…
Justine is a Partner and Head of
Employment Law at Hillyer
McKeown.
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. 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
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. Employment Law Update
Transfer of Undertakings – 1st May 2014
• Employee Liability Information deadline –
increased from 14 days to 28 days
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. 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. 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
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
