Preparing for Auto-Enrolment CBI Pensions Conference 2011 29th September 2011 Adrian Waddingham
The Pensions Regulator9 ‘simple’ guides to help employers comply with Automatic Enrolment...2
Establish the “staging date” PAYE size at 1 April 2012 Default staging date 120,000 or more 1 Oct 2012 10,000 to 19,999 1 Mar 2013 3,000 to 3,999 1 Jul 2013 250 - 349 1 Feb 2014 50 - 89 1 Jul 2014 <50 1 Mar 2014 – 1 Feb 2016 New employers 1 Mar 2016 – 1 Sep 2016Employers may apply to bring forward their staging date. The Pensions Regulator will write with 12 then 3 months notice 3
Qualifying Criteria • Must allow employer to automatically enrol, opt in and re-enrol a jobholder • Must not require the jobholder to express a choice or provide any information • Must be a tax-registered occupational or personal pension scheme Some non-UK pension schemes can be qualifying (separate criteria apply) but cannot meet the automatic enrolment criteria4
ELIGIBLE NON- NON- ENTITLED JOBHOLDER ELIGIBLE ELIGIBLE WORKER JOBHOLDER JOBHOLDER Earnings Above £7,475 Above £5,035 Above £7,475 Below (2011/12 (2006/7 terms) (2011/12 £5,035 terms) but below terms) (2006/7 £7,475 terms) Age 22 to State 16 to 75 16 to 22 16 to 75 Pension Age Eligible for Yes No No No auto enrolment? Eligible for Yes Yes Yes No companycontributions?Can choose to Yes May opt in May opt in May join opt out?5
Minimum Requirements – DB schemes OK if contracted-out of the State Second Pension OK if meeting the “test scheme standard” − Broadly 1/120ths of qualifying earnings from State Pension Age • CARE schemes subject to additional requirement for annual revaluation of benefitsAll qualifying schemes must be UK tax-registered occupational or personal pension schemes6
Minimum Requirements – DC schemes • Based on contribution rate • % of qualifying earnings ie £5,035pa to £33,540pa in 2006/7 terms - to be updated in Jan 2012 • Phasing in of minimum contributions 2% total contribution 5% total 8% total 2% 3% 1% employer contribution employer employer Staging periodOctober October October 2012 2016 2017 Not yet known how salary sacrifice be treated
DC schemes Certification alternative• Flexibility where pensionable earnings not based on qualifying earnings• Proposed options recognise pay from the first £1 of earnings• Three options: (1) base pay, (2) pensionable pay at least 85% of total pay and (3) total pay (1) 3% (1) 6% (1) 9% Minimum total (2) 2% (2) 5% (2) 8% contribution (3) 2% (3) 5% (3) 7%Minimum employer (1) 2% (1) 3% (1) 4% (2) 1% (2) 2% (2) 3% contribution (3) 1% (3) 2% (3) 3% Staging period October October October 2012 2016 2017 8
Minimum Requirements: Hybrid plans • Neither DB nor DC but which generally have elements of both − e.g. cash balance, fixed benefit • Depending on type, will need to meet DB or DC requirements, or a combination of both • DWP to issue further details and guidance 9
National Employment Savings Trust (NEST)• Aimed at low earners and micro employers• Trust-based multi-employer DC scheme• NEST needed as DC pension providers declined to offer existing products to target group due to profitability• Cap on contributions of £4,200 pa (in 2011/12 terms)• No transfers in or out normally allowed• Will qualify for automatic enrolment Perhaps use for entitled workers or specific high turnover, low paid employee groups. You can use more than one scheme.10
NEST investments • Intended default investment approach begins with low risk: NEST feels that target group may react badly to losses … could restrict scope for long term growth … and flies in the face of current convention! NEST Approach Traditional ApproachRisk Long Term Mid Term Short Term
NEST – taking benefits• The same as other UK registered schemes• Benefits available from age 55• Tax free lump sum = 25% fund value• Trivial commutation allowed• Retirement options and process? High ambition for online administration and “decumulation” without advice – at odds with the circumstances of the target group?
When to automatically enrol • The first date a worker meets the criteria to be an eligible jobholder • Employers can choose to postpone automatic enrolment for up to 3 months (must give information to the eligible jobholder and he/she may opt in) • Employers can postpone automatic enrolment to a DB/hybrid scheme up to October 2016 (conditions apply)13
Opting out• Ongoing membership of a pension plan not compulsory• Jobholders may choose to opt out By giving an Opt-Out Notice within the opt-out period … after having been enrolled into a pension scheme … and having received the enrolment information• Entitled workers have no opt-out rights But do have a 30 day cancellation period (personal pension schemes)• It is not possible to opt out after the opt-out period has ended but jobholders may cease active membership − Entitled workers may do this at any time14
The opt-out period Auto-enrolment date Earliest possible Earliest possible Latest possible start date for date opt-out date opt-out opt-out period period ends period ends Latest possible start date for opt-out period Window for possible opt-out period Joining window 1 month 1 month If opt-out period started early in joining window, may be possible to reach end of opt-out period before contributions passed to the pension scheme – may ease refund process15
The opt-out notice and refunds • The opt-out notice must normally be provided from the pension scheme and NOT the employer − due to concerns over employers pressurising opt outs − exception – occupational scheme in-house administration • The employer must check opt-out notice is valid and, if so: − stop deducting contributions − let the scheme know − issue any refunds • Time limits for contribution refunds − Must not wait to get contributions back from the pension scheme Occupational schemes normally allow refunds outside the opt-out period on ceasing active membership within two years - the Government plans to address this16
Tax issues • “Enhanced” and “Fixed Protection” from the “Lifetime Allowance” − Generally do not permit further benefit accrual − Likely to be retained if an eligible jobholder is automatically enrolled but subsequently opt outs • Jobholders enrolled on a “salary sacrifice “ − Can the salary sacrifice arrangement be cancelled?17
Start preparing • Establish the staging date and prepare a project planStep 1 • Assess the workforce to determine the likely Auto-Step 2 Enrolment responsibilities and financial implications • Assess which pension schemes are to be used and forStep 3 whom. Review and make amendments where necessary. • Review the internal procedures, including payroll, joiningStep 4 and opting out processes • Prepare communications and documentsStep 5 Enquiries: email email@example.com
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