Pensions and Auto-Enrolment document discusses: 1) The need for pension reforms due to increased job mobility, funding problems from final salary pensions, and an aging population. 2) The UK government's solution of requiring all employers to offer a workplace pension through automatic enrollment of eligible employees by 2018, with minimum contribution rates that increase over time. 3) Employers' responsibilities to choose a pension provider, communicate the changes, ensure compliance, and face penalties for noncompliance.

1. Pensions and Auto-Enrolment
Ian Metcalf
Haymarket Associates Ltd

2. What is a pension?
“A pension is a fixed sum, to be paid regularly to
a person, typically following retirement”
But pension income can be derived from a
number of sources

3. So, why the need for change?
Before we can look forward, we have to look backwards
• Once upon a time…
• Only the bigger companies had pensions
• Pensions were based upon service and final salary
• Employees had to stay with the employer to benefit
• Protected Rights
• This led to more ‘job mobility’

4. • With Job Mobility came the burden of maintaining a pension
scheme for staff who no longer contributed
• Successive pensions ‘scandals’ (Maxwell) tightened the rules
governing the funding and administration of pension
schemes making the running of a Final Salary scheme
administratively burdensome and expensive
• Gradually, Final Salary pensions have died out and have
been replaced by ‘Personal’ or ‘Money Purchase’ pension
schemes

5. Demographics and the Baby Boom
• People are generally living longer and retiring earlier
• We’re starting work later, too
• The Baby Boomers are coming to retirement now and there
is a major demographic shift in the UK
• There are now more people in Britain over State Retirement
age than Children (DWP April 2013)
• By 2020 the over 50s will represent 48% of the working age
population (DWP April 2013)

6. My Grandad
My Dad
Me
14
16
18
65
60
65?
68
78
85?
51 / 3
44 / 18
47 / 20
Funding Problems?

7. So what can a poor government do?
• Raise the State Retirement Age
• Means Test Benefits
• Raise taxes and National Insurance to pay pensions
• Or…..
•Force people to contribute to
pension schemes of their own

8. Why Now?
• This pensions ‘Time Bomb’ has been ticking for decades
• Making these changes is politically dangerous and
unpopular
• If it’s in a manifesto it would be a vote loser
• If it’s not in a manifesto it can’t be implemented early in a
term of office
• Closer to elections would mean a danger of not being re-
elected
• So successive Governments have kicked this particular can
down the road until changes are absolutely necessary

9. So what are the changes?
• By October 2018 every employer must have a workplace
pension
• Every employee must be enrolled automatically
• Employees and employers have to contribute to the scheme
• Contributions must be at least 8% of qualifying earnings
• Employers must make contributions of at least 3%

10. But the pensions have to start before 2018
• Beginning in October 2012 employers have been required to
implement these schemes beginning with the very large
companies
• Each employer has been allocated a date by which their
pension scheme has to be in place and by which employees
have to be Automatically Enrolled – This is called the
‘Staging Date’
• The Staging Date is determined by the PAYE reference
number

11. Graduated contributions
• From your Staging Date until September 2017 contributions
must be a total of 2% of the employee’s qualifying earnings
with a minimum of 1% contributed by the employer
• From October 2017 until September 2018 those
contributions must be a total of 5% with the employer
paying a minimum of 2%
• From October 2018 the full 8% (3% employer’s) will need to
be in place

12. But what if I don’t want to?
• The Government is serious about this – the can has been
kicked down the street for too long
• Penalties for non-compliance range from between £50 and
£10,000 per day depending upon the size of the workforce
and the level of non-compliance as well as ad hoc penalties
up to £50,000
• For those of you here, the likely level of penalty for non-
compliance could be £500 per day

13. Fines? I remember Stakeholder!
The Government is serious about this – up to the end of
2014 169 employers have already been fined

14. What you have to do next
• Firstly, you will need to determine your staging date
• Then, assess your workforce for eligibility to the scheme
• Choose a pension scheme provider
• Communicate with the workforce
• Review your contracts of employment
• Organise payroll systems to ensure compliance
• Implement the pension scheme
• Continually monitor and assess the eligibility of employees

15. What employees have to be enrolled?
• Eligible Job Holders – aged between 16 and State Retirement Age and
earning more than £10,000 per annum
• These members have to be enrolled
• Members are entitled to ‘opt out’ if they wish but you, as an employer,
are forbidden to persuade them not to join or to opt out
• Non-Eligible Job Holders – aged between 16 and State Retirement Age
and earning between £5,824 / a and £10,000 per annum or earn above
£10,000 / a and are under 22 or over State Retirement Age
• These members do not have to be enrolled unless they specifically wish
to join and you will have to allow this
• Other Entitled workers outside these categories have a right to join a
pension scheme but the employer can choose a different scheme

16. Choosing a Pension Scheme
• Is Cheapest Best?

17. What do you want from a pension?
Do you simply want to get past the legislation and do the
minimum possible?
Isn’t that a little like learning enough to pass your driving test
but not really learning how to drive properly?
Or do you want to ensure that your employees have a pension
that is worthwhile and one that will go someway towards
helping provide properly for them in retirement?

18. If you were to choose a pension scheme on merit,
there are three main factors to take into
consideration …

19. Flexibility Cost
Investment Performance

20. Let’s take a closer look at why performance is
so important …
Why do most long term investments such as pension funds
invest in equities (Stocks and Shares)?
The following graphs show the performance of Stocks and
Shares (the FTSE All Share Index) compared with Savings,
Inflation and Property.

21. 3 Year Performance

22. 5 Year Performance

23. 10 Year Performance

24. 15 Year Performance

25. 20 Year Performance

26. Diversifying not only protects but enhances

27. Diversification – Non Correlation

28. 20 Year Performance

29. The Performance of a good pension fund can outweigh the costs
You would only pay for higher investment fund costs if the performance was
justifying it

30. Is cheap really cheap anyway?
• NEST, NOW Pension, Peoples Pension
• Limited Investment Range – no track record or poor approach
• High Initial Charges
• Nest – 1.8% of contributions and 0.3% of the value of the fund
• Now - £3.60 - £18 per annum and 0.3% of the value of the fund
• Limited Flexibility
• Other drawbacks
• Not in Trust
• No Transfers in or out

31. It has been said that the definition of an ‘expert’ is someone who knows
when to call an expert in
If you are really looking to provide a worthwhile solution for your staff and
not simply ‘pass your driving test’ then it’s worth seeking expert advice to
choose the correct pension scheme
But hurry!

35. Leaving this to the
very last minute
before your Staging
Date would be a
‘very brave’ thing to
do
Find out your staging
date immediately
and seek advice as
soon as possible

36. Questions
Ian Metcalf
Haymarket Associates Ltd