Workplace Pensions: Employers

What is Pensions Automatic Enrolment? Pensions Automatic Enrolment will have an effect on any business in the UK that employs workers, whether it’s just 1 worker or 1000 workers. It started back in July 2012, and is being phased in depending on the size of the employer. All eligible workers (known as eligible jobholders) will need to be automatically enrolled into a suitable workplace pension scheme with a mandatory minimum contributions from the employer. Workers may also have to make a contribution.

What is Pensions Automatic Enrolment? (cont.) It is essential to be prepared, to ensure the changes required to systems are identified and all parties, including HR and payroll, fully understand what is required of them Employers need to understand their duties associated with these new laws, as they could be potentially time consuming, complex to manage and costly to administer

Compliance Requirements for the Employer Employers will be required to do the following: Assess Eligibility of all workers Comply Ensure that their pension schemes comply with all regulations Manage Manage the enrolment process for all workers Update Manage and update the opting in and out of workers Declare To the Pensions Regulator that they have complied

Compliance Requirements for the Employer (cont.) Employers will be required to do the following: Contributions Manage contributions No Inducements Ensure that inducements to opt out are not offered Communications Provide regular updates and employee communications Re-enrol Re-enrol opted out workers approximately every three years Records Keep accurate records of all the above

Failure to Comply If an employer does not comply, the following consequences may apply: “Wake up call” fine £400 5-49 workers up to £500 per day 50-249 workers up to £2,500 per day 250-499 workers up £5,000 per day

Why is this happening? Lack of retirement saving Dependency on state funded retirement Cost – This is a measure to encourage private saving, complementing those other measures which the Government is making to the State Pension and State Pension Age, to make such State pensions affordable, sustainable and simpler in the long term

The 8 Key Steps 1 2 3 4 5 6 7 8 Staging date check and confirmation Assessment of workforce and analysis of cost implications 2 Analysis of existing scheme 3 Communication of changes to workers 4 Automatic enrolment of all eligible workers (eligible jobholders) 5 Commencement of contributions and administration of payments 6 Declare compliance to the Pensions Regulator 7 Ongoing management, administration and record keeping 8

Knowing your Staging Date Workers Staging Date 90 – 159 01-May-14 62 – 89 01-Jul-14 61 01-Aug-14 60 01-Oct-14 59 01-Nov-14 58 01-Jan-15 54 – 57 01-Mar-15 50 - 53 01-Apr-15 40 – 49 01-Aug-15 30 – 39 01-Oct-15 Your staging date will be determined by the size of the PAYE scheme that you had in April 2012.

Knowing your Staging Date (cont.) Workers Staging Date Fewer than 30 (date specific to the employer in the list shown, allocated according to PAYE scheme reference) 01-Jun-15 01-Jul-15 01-Sep-15 01-Nov-15 – 01-Apr-17 Employers with no PAYE scheme 01-Apr-17 “New born” PAYE schemes (date specific to the employer depending on when PAYE income was first payable) 01-May-17 – 01-Feb-18 Your staging date will be determined by the size of the PAYE scheme that you had in April 2012. If its size was fewer than 30 workers, there is s large range of dates which could potentially apply determined by your PAYE scheme reference, one of which is specific to you. “New born” refers to a new PAYE scheme set up after April 2012. Again a range of dates applies.

Contribution Rates Minimum employer contributions based on qualifying earnings Staging Period Employer (minimum) Worker Tax Relief Total Contribution Oct 2012 to Sept 2017 1% 0.8% 0.2% 2% Oct 2017 to Sept 2018 2.4% 0.6% 5% Oct 2018 onwards 3% 4% 8% The minimum employer contribution above assumes that the worker is required to contribute. The employer can instead choose to subsidise the worker contribution partially or fully. What matters is that the total contribution (including the minimum employer element) is at least that shown in the Total Contribution column of the table. Salary exchange/sacrifice is possible. Qualifying earnings is explained in the slides following. Other contribution design structures are also possible to meet the requirements, as follows.

Contribution Rates (cont.) Minimum employer contributions based on other definitions of pensionable pay The table below shows three other possible design structures, Sets 1, 2 or 3. If one of these is used, it requires a process called certification which is an employer responsibility, and it requires some further administration and processes. The table shows a summary of these alternative design approaches, contrasting the percentage levels of contribution required as from October 2018 and the pensionable pay basis for their calculation. Before October 2018 lower percentage contribution rates apply. Under Set 2 below an additional test applies to allow it to be used. This is that the total basic pay of all workers covered must not be less than 85% of their total earnings. Employer (minimum) Total Contribution Pensionable Pay Set 1 4% 9% Basic pay Set 2 3% 8% Basic pay (see also note above). Set 3 7% Pensionable earnings

Qualifying earnings and other approaches to pensionable pay What must count and what may be excluded Pensionable pay Mandatory elements Permitted Exclusions Qualifying earnings Salary, wages, commission, bonuses, overtime, statutory payments delivered through payroll. Earnings below the lower level of the qualifying earnings band (£5,824 p.a.) Earnings above the upper level of the qualifying earnings band (£42,385* p.a.). * in 2015/16. Basic pay (Sets1&2) All basic pay counting from the first pound (there is no lower fixed amount offset to be excluded). Earnings which are not explicitly excluded. Statutory payments delivered through payroll Bonuses, overtime, commission, shift allowance and, if reasonable, certain car allowances and those for health and safety, relocation, meals, clothing etc. Earnings above a cap of similar amount to that above. The rule is that the resulting capped contribution must be no less than would have applied if qualifying earnings had been used. Pensionable earnings (Set 3) As for qualifying earnings but counting from the first pound (no lower band offset applies). Earnings above a cap of similar amount to that above. Same rule applies.

Project planning is key and may take 6 – 8 months Delivery Choose pension arrangement(s), decide or revise pensions strategy Compliance Understand the detail, address statutory timelines, plan for declaration of compliance to the Pensions Regulator Budgets Choose contribution design and level(s), allow for project implementation costs Processes Consider payroll impact and timelines; contribution collection, opt out refunds and reconciliation; HR processes IT Check data quality and tools, system requirements, test file upload method & timelines Communicate Raise worker awareness, consider statutory notices required, develop Q&A packs

Automatic Enrolment Time Line

Assessment of Workforce * SPA = State Pension Age Below lower level earnings band (currently £5,824, 2015 / 2016 tax year) Above lower level earnings band but below trigger for automatic enrolment (currently £10,000, 2015 / 2016 tax year) Above the trigger for automatic enrolment Qualifying Earnings Worker Classification 16 and under 22 Between 22- SPA* Over SPA * under 75 Entitled (to join) Non-Eligible (but can opt in) Age Eligible Employer ** contribution required Employer ** contribution NOT required ** This indicates only whether an employer contribution is required or not, according to the worker category. The approach to what counts for the calculation of contributions is determined separately.

QWPS (Qualifying Workplace Pension Scheme) The employer is required to automatically enrol all eligible jobholders into a qualifying pension scheme suitable for automatic enrolment. If an existing pension scheme can accept new members, the employer will need to decide if it is to be used as a qualifying scheme for automatic enrolment purposes. What makes a scheme suitable for automatic enrolment? Can a worker be automatically enrolled with no action required of them? Can a worker opt into it? Does the scheme have a “default” investment option? Does it have an opt out facility? Will it accept the employer’s required minimum contributions? Does the scheme meet the new standards for charges borne by members?

Communication Inform all workers Information The correct information at the right time On an individual basis, in writing (email is acceptable to a personalised email address), of any / all changes and how the changes affect them Communication No Inducement Offering no inducement or advice from the employer

Communication (cont.) The key principles for successful communication include: Control Ensuring workers feel in control Clarity Making it clear what workers will personally get out of it Relevance Tailoring the information for each worker group Language Presenting information in language that is simple and easy to understand Repeating Repeating information consistently across the different channels Questions Allowing opportunities for conversations and for questions and answers Understanding Ensuring all the relevant parties in the business understand what role they will be expected to play and that they have the necessary information to fulfil that role

Automatic Enrolment of ALL Eligible Workers (Jobholders) Employers must automatically enrol eligible jobholders into a suitable scheme on the appropriate date, even if the worker has been offered membership of the same scheme previously. For other workers it is up to them whether to opt in or not and benefit from the employer contribution if they are eligible for it.

Automatic enrolment dates and postponement An employer can postpone the date at which he must automatically enrol a worker by up to 3 months. Without postponement, automatic enrolment dates will be the first date at which the worker meets the tests to be an eligible jobholder, starting from the staging date. Once the employer has passed his staging date, if there is no postponement, new automatic enrolments of workers must happen in subsequent pay periods when: A new worker joins and immediately meets the earnings and age tests for automatic enrolment; or An existing worker who previously was too young passes his or her 22nd birthday; or An existing worker whose earnings were previously insufficient have now increased sufficiently.

Automatic enrolment dates and postponement (cont.) Where postponement is used, the original automatic enrolment dates are deferred by the chosen period (up to 3 months). Automatic enrolment must happen at the end of the postponement period, if the worker is at that time an eligible jobholder. Postponement must follow the appropriate process, including communication to the worker. A worker may choose to opt in before the end of the postponement period if they so choose. If the worker’s earnings are sufficient they will be entitled to receive an employer contribution. Postponement does not therefore defer all employer duties at the staging date – it only defers automatic enrolment. The employer must still have a suitable scheme in place and be ready for that time.

Declaration of compliance to the Pensions Regulator Employers must tell the Pensions Regulator how they have complied with their automatic enrolment duties by providing certain information The declaration is an online process, also known as “registration” You need your Government Gateway User ID, the letter code assigned to you by the Pensions Regulator and your PAYE ref The deadline is 5 months after your staging date It is recommended that you start early so you meet this in time

Monitoring the workforce every pay period The following need to be monitored and acted on: New automatic enrolments required Opt-outs, opt-ins Assess new workers and give them the relevant communication Wage increases 22nd Birthdays Retirees Contractors Potential postponements Monitor leavers Monitor temporary leave absences

Keeping records Employers must retain any opt in, joining or opt out notices received from their workers as this is proof that they have exercised these rights. All records must be kept for at least six years (except for four years in the case of opt out notices). Membership data must also be kept (i.e. name, NI no and date of birth) and earnings and contribution data. For those who are automatically enrolled, automatic enrolment dates must be kept. Date of starting active membership is also required for those workers entitled only to join the scheme. Records of postponement communications to workers need also to be kept.

Keeping records (cont.) Employers must also keep details about their pension scheme(s), namely the employer pension scheme reference and name and address of the pension provider. If an alternative approach is used for contribution design other than the qualifying earnings standard (i.e. Set 1, 2 or 3 is used), the certificate needed and relevant supporting papers must also be kept by the employer. Employers must keep all records in a legible format so that the Pensions Regulator can understand them, if they ask to see them. It remains the employer’s legal responsibility to follow these rules even where the pensions administration is outsourced to a third party.