We will map out a six step solution to help employers comply with auto-enrollment requirements: 1) Conduct an initial assessment of staging date, employee statuses, and pensionable pay definitions. 2) Design a qualifying auto-enrollment scheme and select a provider. 3) Consult payroll on administration processes. 4) Develop a member communications strategy. 5) Implement the scheme, including software testing and certification. 6) Conduct annual compliance audits. The goal is to provide employers with guidance to enroll eligible employees, communicate effectively, and avoid penalties from the Pensions Regulator.
2. The Auto Enrolment Advisor
Agenda
• Why it is happening?
• Technical Detail
• What will we do?
• Questions
3. The Auto Enrolment Advisor
• Do you know the Average Pension Fund Size in the UK?
4. The Auto Enrolment Advisor
• 20 Years ago in Australia
• Average pension fund
£24,000
• 20 Years later
• Average pension fund
£300,000
5. The Auto Enrolment Advisor
Timetable
• Auto enrolment started from 1 October 2012
• Start date (known as the staging date) for individual employers depend on
size and PAYE reference
8. The Auto Enrolment Advisor
AGE
Wage
<22 22-SPA SPA<
>£10,000 NON ELIGIBLE ELIGIBLE
EE & ER Contributions
Must be enrolled
NON ELIGIBLE
£5,824 -
£10,000
NON ELIGIBLE
<£5,824 ENTITLED
EE & ER Contributions
Can ‘opt in’
EE & ER Contributions
Can ‘opt in’
EE & ER Contributions
Can ‘opt in’
EE Contributions only
May ‘opt in’
9. The Auto Enrolment Advisor
In Plain English
• Some are in!
• Some can come in!
• Some might want to come in!
• Important point is each has to receive a letter.
10. The Auto Enrolment Advisor
Contributions
• Based on pensionable earnings, where employer pension scheme meets
minimum levels
Note Pensionable earnings means the higher of employer’s definition of pension earnings
pay. Basic pay excludes variable elements such commission, bonuses and overtime.
• 9% total with at least 4% from employer based on pensionable earnings, or
• 8% total with at least 3% employer, providing pensionable earnings are at
least 85% of total earnings, or
• 7% total with at least 3% employer, providing pensionable earnings are
100% of total earnings
• The employer has to certify every 18 months that minimum contributions
are met on the alternative basis.
11. Example 1
Mr Jones is employed by Company
1 and receives a basic salary of
£15,000 p/a with no other sources
of income (bonus/commission).
Which contribution basis would be
most beneficial for the employer?
Qualifying Earnings:
£15,000 - £5,824 = £9,176 x 3% =
£275.28
Basic Pay:
£15,000 x 4% = £600
£275
£600
£0
£100
£200
£300
£400
£500
£600
£700
Banded Earnings Basic Salary
12. Example 2
Mrs Evans is employed by
Company 2 and receives a basic
salary of £15,000 p/a plus an
annual bonus of £10,000.
Which contribution basis would be
most beneficial for the employer?
Qualifying Earnings:
£25,000 - £5,824 = £19,176 x 3% =
£575.28
Basic Pay:
£15,000 x 4% = £600
£575
£600
£100
£200
£300
£400
£500
£600
£700
Banded Earnings Basic Salary
13. Example 3
Mr Adams is employed by Company 3
and receives a basic salary of £10,000
and commission of £45,000.
What contribution basis would be most
beneficial for the employer?
Qualifying Earnings:
£42,385 - £5,824 = £36,561 x 3% =
£1,096.83
Basic Pay:
£10,000 x 4% = £400
£1,097
£400
£100
£300
£500
£700
£900
£1,100
£1,300
Banded Earnings Basic Salary
14. The Auto Enrolment Advisor
Qualifying Workplace Pension Scheme (QWPS)
• All employers must automatically enrol eligible employees into a QWPS
• Note there will be no exemptions!
• Includes business owners employing their spouse!
• Where no QWPS already exists, the employer has to designate an alternative for
auto enrolment.
15. The Auto Enrolment Advisor
Penalties
The Pension Regulator will have the ability to impose penalty
notices if an employer does not comply with their new duties
• Fixed penalty of £400 where an employer fails to respond to a
warning notice from The Pension Regulator
• An escalating penalty of £50 to £10,000 a day (depending on
the size of the employer). For example if the employer fails to
pay contributions on time
• Fixed penalty of £1,000 to £5,000 for prohibited recruitment
conduct, for example where an employer screens job applicants
for their intention to join the pension scheme.
16. The Auto Enrolment Advisor
Auto Enrolled Scheme
• Some existing schemes may already qualify.
• Opt outs have to be re enrolled again three years later.
• 3 month postponement period.
• If an employee volunteers to rejoin, the employer must allow
this at least once a year.
17. The Auto Enrolment Advisor
How would we map the solution?
1. Initial Assessment
• Confirm Staging date
• Establish relative points of contact for payroll, pension providers and GCR
• Identify employee status
• Confirm definition of Pensionable Pay – Banded Earnings or Tiered Options
Options
• Establish the minimum requirements to comply with Auto Enrolment legislation
legislation
• Demonstrate how the various options will impact future cash flow
• Provide report detailing the various options
18. The Auto Enrolment Advisor
How would we map the solution?
2. Scheme Design for Auto Enrolment
• Discuss options around Auto Enrolment providers
• Assess existing pension scheme (if applicable)
• Obtain terms from Providers
• Select Provider and make recommendation based on core values of
of the company
19. The Auto Enrolment Advisor
How would we map the solution?
3. Administration Process
• Consult with Payroll provider and assess current software
• Consider existing contractual arrangements (interaction of existing
existing benefits)
• Consider Payroll process and identify and recommend their
responsibilities
20. The Auto Enrolment Advisor
How would we map the solution?
4. Member Communications
• Agree a communications strategy
• Evaluate what letters have to be sent and to whom
• Distribute the correct letters to the appropriate employees in a timely
timely fashion
21. The Auto Enrolment Advisor
How would we map the solution?
5. Implementation
• Test Software
• Scheme Certification
• Register Qualifying Schemes
• Complete Declaration of Compliance
22. The Auto Enrolment Advisor
How would we map the solution?
6. Annual Compliance Audit
• Review previous year to assess that all requirements from TPR are
are being fulfilled
• Assess alterations that were made to the scheme to ensure
compliance
• Answer any queries that Payroll have in regards to the scheme
23. The Auto Enrolment Advisor
Summary
• It all starts with information!
• Staging Date, Segment Employees & Know costs
• Communication is key!
• Advice (Tread with care)
• TPR are on the lookout for discouraging employees to join
Currently, the average British worker retires with a pension pot worth around £40,000. - See more at: http://www.nutmeg.com/nutmegonomics/are-you-saving-enough-for-your-retirement/#sthash.yrNolpoN.dpuf
In Northern Ireland, savers were found to be building funds sufficient to last just three and a half years, while Scottish people could expect five years, Welsh savers just over four years, and Londoners five and a half years.
http://home.bt.com/lifestyle/money/investing-pensions/average-pension-will-last-five-years-11363938511168
However, when asked what they thought an adequate and comfortable annual income in retirement was, ‘more than £15,000, up to £20,000’ was chosen by 26% of those surveyed. A pension pot of £350,000 would be required to reach this figure.
References:
http://www.bestinvest.co.uk/press-releases/latest-press-releases/2015/april/great-expectations-%C2%A3330k-average-gulf-in-pension-pots-revealed
Accounting for inflation this figure is equivalent to £36,125
Australian scheme introduced in 1997
The timetable for access has been determined and details can be found on The Pension Regulator website, details of which are later in this presentation.
The number of employees will be determined by the number on your PAYE payroll system on 1 April 2012 and any increases or decreases after this date will not alter your staging date
As an example the original staging dates were as detailed below
If you have between
800-1,249 employees then your staging date is 1 October 2013
150-239 staging date is 1 May 2014
Less than 50 is determined by the last 2 characters in your PAYE reference number and start from 1 April 2014 (now delayed until 1 May 2015).
A delay to staging dates for employers with less than 3,000 employees was announced by Steve Webb, Pensions Minister on 28 November 2011. An exact timetable should be available in early 2012.
National Employment Savings Trust
NEST are the only provider that have to accept everyone
Where an employer currently has a pension scheme in place the contributions are normally based on earnings from the 1st £ earned, rather than starting at a minimum limit as banded earnings do.
In light of this the legislation will allow for schemes that employers have/put in place to have contributions based on an alternative basis as per the minimum levels on the slide
Band earnings between £5,824 and £42,385
9%- employer pays 2%, 3% then 4%
Employee pays 1% 3% and 5% but with 20% tax relief
8% employer 1% 2% 3%
Employee 1% 3% and 5% but with 20% tax relief
7% employer 1% 2% 3%
Employee 1% 3% 4% but with 20% tax relief
All employers will have to give access to a QWPS. There are no exemptions unlike the policy for Stakeholder, where an employer has to have 5 employees before they have to have a designated stakeholder scheme.
Many employers will have schemes that meet the minimum contribution basis and they can continue to use this for existing members by certifying this and reconfirming every year.
However unless the other requirements of a QWPS are met, eg, no paperwork required, auto enrolment available and a default investment fund an additional solution will also be required
Compliance Bulletin June 2015
The Pension Regulator will have enforcement and compliance functions to ensure that employers have relevant schemes in place to meet their duties at their staging date and ongoing.
For non compliance there will be a range of penalties and fines that they can impose on the employer.
A warning may be given for instance where an employer is accused of offering inducements to encourage members to opt out or leave the scheme.
Contributions should be paid by an employer to the scheme provider by the 19th of the month following deduction eg contributions deducted via payroll on the 25 January would have to be with the scheme by 19 February.
Avondale
They will identify trends and have got teeth that they don’t really want to use.
Steve Moy meets with TPR on a monthly basis. Provides us with regular updates.
As part of the ongoing administration of the scheme any employee who decided to opt out of the QWPS has to be automatically auto enrolled into the scheme every 3 years. They can again opt out at that point.
For any employees who have opted for enhanced or fixed protection they must ensure that they opt out within the 1 month period otherwise they will be deemed to have made a contribution and will lose their protection meaning the potential of an Lifetime Allowance Charge
Any employee who opts out during the statutory period of 1 month must have any contributions already deducted via payroll returned to them. The employer will then have to reclaim these monies from the QWPS.