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PDF Pensions, Ian Bird, Foster Denovo



A workshop updating on the impacts of auto enrolment and comulsory contributions on employers

A workshop updating on the impacts of auto enrolment and comulsory contributions on employers



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PDF Pensions, Ian Bird, Foster Denovo PDF Pensions, Ian Bird, Foster Denovo Presentation Transcript

  • Charity Finance Directors’ Group Understanding the Impact of Pension Reform Presented by Ian Bird
  • Areas covered1. General Pensions Update2. Auto-enrolment in plain english3. Understanding the National Employment Savings Trust (NEST)4. How early decisions could save employers huge sums for many years
  • General Pensions UpdateRemoval of the defaultretirement ageState Second PensionProposed flat StatePension from 2015/2016Lord Hutton Report andImpact on final salaryschemesTupe & Fair Deal
  • Aims of Pensions Reform To increase the retirement savings of the nation Aimed particularly at the low paid who do not save and small employers The hope is that many continue to save and not opt out
  • Auto-enrolment into ‘a’ pensionKey principles:New employees auto-enrolled after 3 monthsAll non-pension members enrolledEmployees must join and then can then choose to opt outOpt outs re-enrolled every 3 years
  • Employers must auto-enrolinto a ‘Qualifying’ pensionscheme1. Use NEST2. ‘Certify’ own existing Group Pension3. Certified Scheme & Nest
  • Contribution structureEnrol if over 22 and under State retirement age with earnings over £7,336‘Jobholder’- pays 5% of ‘Qualifying Earnings’ and Employer - pays 3%‘Qualifying’ earnings = total earnings in the band between £5,715 and £38,185 (if earn over £7,336)Total Earnings include basic salary, commission, bonuses, overtime and statutory payments
  • Phasing to help employers with the extra costPhasing in contributionsOriginal Phasing proposal2012 Jobholder 1% Employer 1%2013 Jobholder 3% Employer 2%2014 Jobholder 5% Employer 3%
  • Staging date by employee numbers Employee No. Staging date 120,000 or more 1 Oct 2012 50,000 - 119,999 1 Nov 201236 Staging Dates 30,000 - 49,999 1 Jan 2013 20,000 - 29,999 1 Feb 2013 10,000 - 19,999 1 Mar 2013 6,000 - 9,999 1 April 2013 4,100 - 5,999 1 May 2013 4,000 - 4,099 1 June 2013 3,000 - 3,999 1 July 2013 2,000 - 2,999 1 Aug 2013 1,250 - 1,999 1 Sept 2013 800 - 1,249 1 Oct 2013 500 - 799 1 Nov 2013 350 - 499 1 Jan 2014 250 - 349 1 Feb 2014 240 - 249 1 April 2014 150 - 239 1 May 2014 90 - 149 1 June 2014 50 – 89 1 July 2014 Less than 50 Aug 2014/ Sept 2016
  • Delayed phasing for early stagers 2012 Jobholder 1% Employer 1% 2013 Jobholder 1% Employer 1% 2014 Jobholder 1% Employer 1% 2015 Jobholder 1% Employer 1% 2016 Jobholder 3% Employer 2% 2017 Jobholder 5% Employer 3%
  • How the numbers work… Max £3,600 pa£38,185 £32,470 £20,000 8% Total 8% Total Contribution Contribution £1,142.80 £2,597.60 Salary £0£7,336 contribution£5,715 £6,500
  • ‘Certification’ of existing contributions Total Pay Total Total PayPensiona Pay ble Pay If less If more than 85% 7% than 85% 8% 9% Option Option 2 Option 3 1
  • Consequences of non-complianceIt will be a criminal offence for employer not to: • set up in first place • auto-enrol • re-enrol every 3 years • make an inducement
  • Individuals not just employers • Trustees or managers of pension scheme • Payroll administrators • Accountants • Scheme administrators Fines: £400 Fixed penalty Up to £10,000 per day Up to 2 years in prison
  • What are the charges?Annual Management Charge 0.3%Contribution charge 1.8%Aim to phase out contribution charge but no details of whenAim to recoup the est. £600m of running costs over 10 years
  • Who will do NEST investment? US Group 440 Investment Professionals 28 Worldwide locations $1.9 Trillion under managementNo transfers in or out
  • Who will do NEST administration? Indian Group into: • IT • Communications • Engineering • Materials • Services • Energy • Consumer products • Chemicals Were they selected or last man standing? Famous for the cheapest new car in the world
  • What about the Return On Investment?• Employees might think you are only paying into pension because you have to• Employee appreciation could reduce• ‘Certification’ because what you offer is better than NEST?
  • How do you create and maintain a good ROI?Internal marketingEducationCommunicationIndividual adviceForecasting and targeting Leads to higher employee appreciation of pension
  • Salary SacrificeOne of the most cost-effective ways to getmore into employees’ pensionsEmployees elect to reduce their salary andhave their sacrificed salary paid into theirpension.As the employer will not have to pay NationalInsurance (NI) on the sacrificed salary, thiscontribution can be enhanced by redirectingsome or all of the NI Saving into theemployee’s pension.
  • Salary Sacrifice £1 of income for a basic £1 salary sacrifice with rate tax payer, who employer paying pension uses it to make a contribution (assuming the pension contribution full employer’s NI rebate is added)Employee Earnings £1.00 Nil (no NI on pension contribution)Employer NI £0.14 £1.14Total cost to employer £1.14 Nil (£1 salary sacrifice instead)Employee income tax £0.32 Nil(20%) and NI (12%)Employee net monthly £0.68 Nilcontribution to pensionEmployee’s total gross £0.85 £1.14contribution to pension
  • Fees and retainers How are Fund based remuneration employerspaying for advice Factored fund based remuneration to employees? Combinations of the above
  • Need for advice will increaseNEST will mean increased administration for employersHigher numbers of employees auto- enrolled will have questions and ongoing queriesAdviser numbers down after 2012?
  • Effects of the Retail Distribution reviewMinimum qualifications increased as of Jan 2013 No more factoring ofAdviser numbers predicted commission to cover to drop cost of enrolment and advice out from JanToo old to make journey? 2013
  • Preparation for 2012?Decide which type of pension provision tomake for staff from 2012 - NEST, employerpension scheme or both.Examine existing pension schemes todetermine if they will meet the minimumrequirements set out by the act & offergood valueWill you offer salary sacrificeConsider the cost impact of thecompulsory minimum 3% employercontribution and your current contributionbasisAlso consider the implication of the RetailDistribution Review (RDR) and howemployees will pay for any advice
  • Thank youand questions?
  • • This presentation is for information purposes only and does not constitute advice or a personalisedrecommendation• The value of investments can fall as well as rise• Past performance is not a reliable indicator of future results• This presentation is based on our understanding of current and proposed legislation, which maychange• Tax reliefs are those that apply currently, the value of such reliefs will depend on thecircumstances of the plan holder and may be subject to change in the future• What you get back at retirement cannot be guaranteed and will depend on how much you pay in,investment performance and interest rates when you retire
  • Contact UsFor further information, please contact;Ian Bird DipFAFoster Denovo LtdTel: 0845 838 6060Email: ian.bird@fosterdenovo.comWeb: www.fdemployeebenefits.comFoster Denovo is Authorised and Regulated by The Financial Services Authority