By Keegan and Pennykid Insurers at WCVA's Wales Charity Law Conference

1. Understanding the Essentials of Pensions Auto-Enrolment
Colin Walker
Independent Financial Adviser

2. Today we will look at
∗ Employer concerns!
∗ Preparing for Automatic Enrolment
∗ When do I have to have my scheme in place?
∗ Who is eligible for Automatic Enrolment?
∗ Employee Communications
∗ Contributions – phasing In
∗ Opting Out

3. Today we will look at
∗ Additional Requirements
∗ Enforcement & Record Keeping
∗ Employers- who deals with Auto Enrolment
Issues?
∗ What makes a scheme qualifying?
∗ Is there anything I can do to fund this more
efficiently?
∗ Questions

4. 1.3m UK employers
Approx 280,000 employers
Pay less than a 3%
Approx 750,000 employers
Currently offer no provision
Approx 270,000 employers
Pay more than 3%
Source: ttp://www.dwp.gov.uk/docs/factsheet-impact-reforms-sept09.pdf

5. • 67% of respondents said employers are concerned by
the cost of meeting the long-term compliance
requirements.
• 38% of respondents said employers are worried about
ensuring they have an efficient way of integrating
auto-enrolment with their payroll functions to gather
accurate contribution, opt-out and employee profile
data.
• 33% of respondents said employers are concerned
about putting a compliant pension scheme in place in
time for their staging date.
* Survey carried out by Aviva - September 2012
Employer Concerns!

6. ∗ Auto Enrolment October 2012- February 2018
∗ Staging date depends on employer size, but can be
brought forward
∗ Employer must enrol eligible employees (job holders
into qualifying Scheme)
∗ Provide information to all employees
∗ Eventually Employer required to pay 3% & Employee
5% of qualifying earnings (minimum 8% overall)
∗ Register with TPR and keep records
∗ 4-8 million new savers in workplace from 2012
∗ Additional £10bn-15bn annual savings by 2050
What’s Happening And When?

7. Preparing for Automatic Enrolment
Employer-no scheme
∗ Find out Staging Date
∗ Assess the workforce
∗ Determine earning definitions
∗ Calculate costs
∗ Consider scheme type
∗ Communicate to workers
∗ Plan implementation
∗ Enrol eligible job holders
∗ Register with TPR & keep
records
∗ Contribute to workers
pensions
Employer-with scheme
∗ Find out Staging Date
∗ Assess the workforce
∗ Review/determine earnings
definitions
∗ Calculate Costs
∗ Review existing Scheme
∗ Consider scheme type
∗ Communicate changes/terms to
workers
∗ Plan implementation
∗ Enrol eligible job holders
∗ Register with TPR & keep
records
∗ Contribute to workers pensions

8. When do I have to have my scheme in place?
Employer Staging Dates
Employer size Auto-enrolment staging date
PAYE scheme size Staging date
120,000 or more 1 October 2012
50,000-119,999 1 November 2012
30,000-49,999 1 January 2013
20,000-29,999 1 February 2013
10,000-19,999 1 March 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 August 2013
1,250-1,999 1 September 2013
800-1,249 1 October 2013
500-799 1 November 2013
350-499 1 January 2014
250-349 1 February 2014
50-249 1 April 2014 to 1 April 2015
Test tranche <30 Employees 1 April 2015 to 30 June 2015
30-49 Employees 1 August 2015 to 1 October 2015
Less than 30 Employees 1 January 2016 t0 1 April 2017
New Employers 1 May 2017 to 1 February 2018
The rules for staging within each size grouping have still to be
confirmed.

10. Who is eligible for
Automatic Enrolment?
Assessing and categorising the workforce
2013/2014 levels
Qualifying Earnings
Age < £5,668 £5,668 - £9,440 > £9,440
16-21 Entitled Worker Non-eligible
jobholder
Non-eligible
jobholder
22-SPA Entitled Worker Non-eligible
jobholder
Eligible jobholder
SPA-75 Entitled Worker Non-eligible
jobholder
Non-eligible
jobholder

11. Pay Reference Period
2013-2014 Annual 1 week Fortnight 4 weeks 1 month 1 quarter Bi-annual
Lower level
of
qualifying
earnings
£5,668 £109 £218 £436 £473 £1,417 £2,834
Earnings
trigger for
automatic
enrolment
£9,440 £182 £364 £727 £787 £2,360 £4,720
Upper level
of
qualifying
earnings
£41,450 £797 £1,594 £3,188 £3,454 £10,363 £20,725
Current Earnings Thresholds 2013-2014

12. Employee Communications
∗ Advising the ‘assessed workforce’ about Automatic
Enrolment process
∗ Set time limits
∗ Advise employees of their right to ‘opt-out’
∗ Tell them how they may be affected (changes if an
existing member, what it means for those not already a
member)
∗ Must be in writing, can include email - gather/provide
email addresses

13. A/e date
Employer gives info to
jobholder
Contract deemed
Auto-enrolment process
Info window max.1 mth
1st
contribution
collected on payday
Jobholder
opts out
2nd
contribution
collected on payday
Opt-out period – 1 mth (6wks if invalid) Refund – 1 mth
Employer
reimburses
contributions
Provider/scheme gives
info to jobholder

14. Contributions – phasing in
Based on Qualifying Band Earnings
Steady State
Defined contribution 1% employee
contribution
3% employee
contribution
5% employee
contribution
Defined contribution 1% employer
contribution
2% employer
contribution
3% employer
contribution
Staging period

15. Opting Out
Opting out
Engage Your
workforce
1 month
Window
Opt
out
Notice
Fill in
Notice
Refund
Worker
Inform
Provider
Refund
Employer
Review
Engage your
Workforce
1 month
Window
Opt out
Notice
Fill in
Notice
Refund
worker
Inform
Provider
Refund
Employer
Default ‘re-enrolment date’ is 3rd
anniversary of Employer staging date every
3 years.

16. Additional Requirements
All Employers will have additional regulatory
requirements
∗Employers prohibited from incentivising opt outs
∗Register with TPR to show they are meeting their
duties (TPR will write to all Employers)
∗Payments will be monitored by Administrators or
Scheme Trustees who need to report failures
∗Must keep records for 6 years
∗Must retain Opt in & Opt Out notices for 4 years

17. Enforcement
Fines from the Regulator
Stage 1 - A compliance/unpaid contribution notice
Stage 2 - Fixed penalty of £400
Stage 3 – Escalating daily penalties
Number of Persons Prescribed daily rate
1-4 £50
5-49 £500
50-249 £2,500
240-499 £5,000
500+ £10,000

18. Record keeping
∗ Responsibility with Employer
∗ Records about jobholders & workers – via payroll
records?
 name, NI, opt-in, joining notice
∗ Records about scheme
 pension scheme reference, scheme name & address
∗ 6yrs minimum (opt-outs 4yrs)
∗ Capable of Regulator scrutiny if requested

19. Number of Employees
Pensions Dept/Human
Resources
? ‘Payroll’
Organisation
Employers – Who Deals With Auto
Enrolment Issues?
large
medium
small

20. What makes a scheme qualifying
∗ Does it permit Automatic Enrolment?
∗ Are employees enrolled automatically within 3
months of joining?
∗ Does the scheme have a “default” investment option?
∗ Recognising the likely characteristics & needs of
employees
∗ Appropriate balance between risk & return
∗ Glide path to safer assets as retirement approaches
∗ Does it meet one of the minimum contribution tests?
∗ Does it have an opting out facility?

21. Qualifying scheme choice
Choices for employers
Existing
defined benefit
& defined
contribution
schemes
New defined
contribution
auto enrolment
schemes
Existing/new
NEST

22. ∗ Chosen scheme must operate automatic enrolment - no member
decisions or actions
∗ Adjust existing Group Personal Pension or Occupational Pension?
∗ Or set up new scheme?
∗ Different solutions for employees – min contributions for some, higher
for others?
∗ Combined GPP and NEST solution?
− Lower earners, highly transitional employees go to NEST, others to
GPP
− Non-discriminatory
Types of Scheme?

23. Types of Scheme?
∗ A qualifying scheme:
– PP or occupational scheme
– minimum contribution level
met
∗ An A/E scheme is a
qualifying scheme that:
∗ can auto-enrol jobholders
∗ initially and every 3yrs
∗ no member action or decisions
∗ Can be a private scheme or
NEST

24. NEST
Scheme
DC occupational scheme
Trustee corporation
Administration
Tata
Charges
0.3% AMC
Charge on contributions of 1.8%
Decumulation
Self-service decision
Focused choice – panel of providers
Investment
Very cautious

25. “…the overarching view is that salary
sacrifice is here to stay, and will prove to
be a valuable tool for advisers looking to
manage the transition to auto
enrolment.”
Source: Corporate Adviser – September 2010
Is there anything I can do to fund this
more efficiently?

26.  Arrangement between the Organisation and
employee to give up part of their future earnings
(salary) in return for a non-cash benefit
 The non-cash benefit is a contribution by the
Employer to the Employee’s pension plan
 Reduced earnings means reduced liability to income
tax and National Insurance
 Nominal Salary can be used – other employee
benefits
What is salary sacrifice?
Note: all views expressed in relation to salary and bonus sacrifice are based on our
understanding of the procedures adopted by an Organisation, and current taxation law and
HM Revenue & Customs practice, which may change.

27. Salary Sacrifice
take
home,
£0.68
NI, £0.12
tax,
£0.20
For every £1.00 earned....
∗ 68 pence in your hand
∗ Grossed up for Tax Relief,
still only 85 pence.
∗ Or using Sacrifice, original
£1.00 + Employer National
Insurance saving of 13.8%
∗ Produces new employer
contribution of £1.14!
This information is based on a Basic Rate
Tax Payer for 2012/2013

28. Without salary
sacrifice
With salary
sacrifice
Your gross earnings £30,000.00 £28,200
(£30,000 - £1,800)
Income tax on your gross
earnings
£3,752.00 £3,752.00
NI contributions on your gross
earnings (12%)
£2,669.40 £2,453.40
Employee (gross) pension
contribution (with tax relief
added)
£1,800.00 £0
Total employer contribution to
your pension plan a year
£2,700.00 £4,500
(includes the
additional £1,800
sacrificed
Take-home pay £21,778.60 £21,994.60
Salary sacrifice – a tax efficient
way to saveWe’ve assumed:
• you’re earning £30,000 a year (20% basic rate tax payer)
• you’re contributing £1,800 (6% of your pensionable salary)
• your employer is contributing £2,700 (9% of your pensionable salary)

29. ∗ 1st January 2013
∗ Changes to Adviser Remuneration
∗ Abolition of Commission
∗ Financial Adviser Charge
∗ How is this paid?
∗ Fees
Retail Distribution Review

30. ∗ The Pensions Regulator –
∗ http://www.thepensionsregulator.gov.uk/employers.aspx
∗ customersupport@tpr.gov.uk
∗ Phone: 0845 600 0707
Useful Links & Numbers

31. CONTACT DETAILS
Colin Walker
Keegan & Pennykid (Insurance Brokers) Ltd
50 Queen Street
Edinburgh
EH2 3NS
Tel: 0131 243 9660
Email: cw@keegan-pennykid.com
www.keegan-pennykid.com

32. Questions