Workplace Pension Reforms – Doing nothing is not an option

Webinar with Alyson Pellowe (People Vision) and Simeon Adams

(Argentis Financial Management)

• Welcome • Participant

involvement• Questions: raise your

‘technological’ hand• Type in chat box

The story so far…

• Pension Reform is going ahead• No exemption for Small Employers• Auto-Enrolment July 2012 – September 2016• Staging date based on Employer size, but can be

brought forward• Employer must enrol staff into an automatic enrolment

scheme, with opt-out facility

Session Objectives

There are a number of key questions all employers want to know

• When do we have to have a scheme in place?

• Who do we have to enrol into the scheme?

• How much it is going to cost?• What are my duties/responsibilities?• Is there anything I can do to reduce

the costs?

How many staff have you

got and when is your staging date?

Timescales

Number of PAYE staff Staging Date

50,000+ Q4 2012

10,000 – 49,999 Q1 2013

4,000 – 9,999 Q2 2013

1,250 – 3,999 Q3 2013

500 – 1,249 Q4 2013

250 – 499 Q1 2014

90 – 249 Q2 2014

50 – 89 Q3 2014

< 50 Q3 2014 – Q1 2016

New Employers Q1 2016 – Q3 2016

Unless you are unlucky!

Employee group Employer requirements

Entitled WorkerEntitled Worker

Earnings under lower threshold (may be £5,715 or NI threshold - currently £7,228)

Must offer access to a pension scheme, but no requirement for employer to contribute

Non Eligible Job HolderNon Eligible Job Holder

Earnings between lower threshold and Income Tax threshold (£7,475 in 2011/12)

No automatic enrolment, but employer must contribute if individual asks to join

Non Eligible Job HolderNon Eligible Job Holder

Age under 22 or over state pension age and under 75

No automatic enrolment, but employer must contribute if individual asks to join

Eligible Job Holders Eligible Job Holders

All other employees

Must be automatically enrolled

Contribution bases

Employer minimum

Minimum total

Full pensionable earnings 4% 9%

Band earnings (P60 earnings £5,715 - £38,185)*

3% 8%

Full pensionable earnings, and at least 85% of payroll is pensionable

3% 8%

Full P60 earnings 3% 7%

*Based on 2010/11 earnings levels and National Insurance thresholds

Phasing-in period until October 2017

At least basic pay, from pound one. Basic pay is “the elements of pay that do not vary”.

Who is going to do this analysis?

What about phasing of contributions?

Employer Employee Tax Relief

Up to 10/2016 1.0% 0.8% 0.2%

10/2016 – 10/2017

2.0% 2.4% 0.6%

10/2017 onwards

3.0% 4.0% 1.0%

Contributions are based on total PAYE earnings between £5,715 & £38,185, increased in line with National Average Earnings, (2010/11 terms)

Waiting Periods

Recommendation

Employers be allowed to use a waiting period of up to three months before automatic enrolment

Individuals are allowed to opt in to the scheme during that time.

Employer Duties

Automatic EnrolmentEmployer Within 1 month1. Give information to the

pension scheme about the eligible jobholder

2. Give enrolment information to the job holder

3. Make arrangements to achieve active membership for the eligible job holder

Opt OutIndividual has 1 month1. Check notice2. Notify scheme3. Stop contributions4. Refund employee

payments5. Reclaim from scheme

Other Aspects

Deferral• Max 3 months• Must tell eligible jobholders in advance• They can choose to opt in during the period

Automatic Re Enrolment• Every 3 years• Same date for all staff• 3 month window either side of anniversary

What regulatory requirements are there?

• Employers must inform the Pensions Regulator about how they have met their obligations within 9 weeks of their staging date, and every 3 years after that

• Employers, pension schemes & pension providers will have to retain records for 6 years, including opt-outs

• Penalties as follows…

How many organisations do you think have been fined by the

regulator for non compliance to the stakeholder scheme?

Penalties

Compliance/unpaid contribution noticeStage 1 - Warning

Fixed penalty - £400Stage 2 – ‘Wake up call’

Escalating penalty

WorkersPenalty per day1-4 £505-49 £50050-249 £2,500250-499 £5,000500+ £10,000

Stage 3 – Persistent offenders

Penalties

Third parties

£400 fixed£200 per day escalating

Prohibited recruitment conduct

WorkersFixed penalty1-4 £1,0005-49 £1,50050-249 £2,500250+ £5,000

- A centralised occupational scheme

- Administered in private sector

- Low charges 1.8% upfront and 0.3% pa administration

- Limited investment choice - A small range of funds, including ethical & religious - ‘Target date’ approach rather than lifestyling

- Restrictions to help target scheme - Contribution limit £4,200 until 2017 - No transfers in or out until at least 2017

NEST (National Employment Savings Trust)

Fund choice

• Default funds (45)

• Ethical fund

• Sharia fund

• Higher risk fund

• Lower growth fund

• Pre-retirement fund

Choice of Investments for Pension Holder

Default fund

Target CPI

Target CPI+3%

Cash/bonds

Foundation phase

Growth phase

Consolidation phase

• As the employer’s only scheme

• For a particular group of workers alongside a scheme for a different category of workers

• As an entry level scheme during a waiting period

• As a base scheme, using another scheme for additional contributions

NEST uses

Nest vs. Private Provision

Nest Private Provision

Suitable for low value schemes?

Simple

Government publicity campaign

Low charges One scheme for all employees

Commission or consultancy charging

Tailored communication material

Adviser support

So what does it all mean for employers?

Employers Concerns

Source: making auto enrolment work, October 2010

HELP!

Why Salary Exchange – AKA “Sacrifice”

Example:• Lets assume two employees each paying a net pension contribution

of £80 per month out of their net pay

Employee 1 - Call Centre Worker on £15,000

Employee 2 – Call Centre Manager on £50,000• The above amounts are then grossed up by the insurer to £100 per

month• Alternatively the Call Centre Worker could exchange £1,411.76 from

his/her salary and Call Centre Manager £1,241.38• Members would have exactly same take home pay• But with Employee and Employer NI Savings then added to each

pension contribution...

Why Salary Exchange – AKA “Sacrifice”?

Call Centre Worker’s pension contribution will have risen to £133.88 gross per month (33% increase over net pay method)

Call Centre Manager’s pension contribution will have risen to £117.69 gross per month (17% increase over net pay method)

Summary

Auto-enrolment will start in 2012

Employer duties:

Administration

Contributions

Need for advice

costs

“Participant Question Time”

Use the ‘hands-up button to alert me to your question

Be sure to have a working microphone so that we can hear you

Don’t want to talk? then simply type a question into the chat box and I will ask this on your behalf

Today we have covered

There are a number of key questions all employers want to know

• When do we have to have a scheme in place?

• Who do we have to enrol into the scheme?

• How much it is going to cost?• What are my duties/responsibilities?• Is there anything I can do to reduce

the costs?

Argentis Financial Management can...

Provide tailored employee benefit advice to help an employer prepare for the forthcoming legislation

Simeon Adams

01932 591680

www.argentisfm.co.uk

SimeonAdams@argentisfm.co.uk

Future PVHR webinars

• We now run webinars on a range of different

subjects

• Write to me if you would like more details

alyson.pellowe@pvhr.com

• Thank you for participating and ….

“Thank you for participating, we look forward to your feedback!”