DERBYSHIRE COUNTY COUNCIL PENSION FUND EMPLOYERS FORUM: AUTO ENROLMENT 17 MAY 2012 Rob White BSc CertPFS Senior Associate Public Sector Advisory Services Team

MERCER 1 01/06/2014 Key Employer duties Practical example Payroll & HR Systems Key areas to consider Identify staging date Agenda Next steps - project overview

MERCER 2 01/06/2014 Have you started to plan for Auto-enrolment? A. Not familiar with the requirements B. Not started yet C. Yes, but only just started D. Yes, progressing well

MERCER 3 01/06/2014 Auto-enrolment Summary of key employer duties Legislation introduces an employer duty to auto-enrol all eligible jobholders into a qualifying pension scheme. To pay a minimum level of contribution on their behalf on qualifying earnings between £5,564 and £42,475 (NI threshold 2012/13 terms). Auto-enrolment applies to jobholders between age 22 and State Pension Age with earnings over £8,105 (level personal tax allowance 2012/13 terms). Jobholders can opt out, but must be re-enrolled every 3 years. Non eligible employees can choose to opt in and employer enrols. 3 month waiting period can apply.

MERCER 4 01/06/2014 Auto-enrolment Identify when your staging date is Staging date for existing employers based on number of employees (by PAYE scheme size), for example: 4,100 – 5,999 by 1 May ,000 – 4,099 by 1 Jun ,000 – 3,999 by 1 Jul ,000 – 2,999 by 1 Aug ,250 – 1,999 by 1 Sep – 1,249 by 1 Oct – 249 by 1 Apr 2014 to 1 Apr – 49 by 1 Aug 2015 to 1 Oct 2015 < 30 by 1 Jan 2016 to 1 April ,000 – 19,999 by 1 March ,000 – 9,999 by 1 April 2013

MERCER 5 01/06/2014 Anticipate those employers using LGPS as auto-enrolment scheme (e.g. scheduled bodies) can delay beyond their staging date until up to 2017 to auto-enrol existing opt-outs But anticipate no delay for new employees eligible for LGPS Identifying eligible jobholders may be a challenge for Employers Casual employees could be affected if meet other eligibility requirements (including possible 3 month waiting period) Complications: agency & contract workers, seasonal staff, temps, part-timers or changed hours Discussions between LGA & DWP continuing over practicalities for LGPS Auto-enrolment What do employers have to do to comply with Auto-enrolment

MERCER 6 01/06/2014 Auto Enrolment What happens if Employers do not comply? A compliance notice may be issued if employers fail to comply with their duties e.g. failure to automatically enrol or failure to refund contributions to opt outs If the employer fails to comply with a compliance notice, TPR may issue a fixed or escalating penalty notice. TPR can address serious or persistent non-compliance via criminal prosecution. The fixed penalty for non-compliance with a notice is generally £400. Fixed penalties can be higher e.g. in relation to prohibited recruitment conduct - penalty ranges from £1,000 for less than four persons on PAYE, to £5,000 for more than 250 persons. Escalating penalties - daily rate ranges from £50 for less than four persons, to £10,000 for more than 500 persons. Employers also need to consider their record-keeping processes to ensure compliance with the requirements. Failure to comply results in penalties under Pensions Act 1995 – up to £5,000 for individuals, £50,000 for corporate bodies. In some cases … even jail !

MERCER 7 01/06/2014 Overview of Auto Enrolment Key areas to consider Operational impact Pension Scheme for Auto enrolment Costs Considerations Additional record keeping requirements Communication

MERCER 8 01/06/2014 Use existing scheme New scheme for new employees and those not currently in another scheme NEST (National Employment Savings Trust) Segment workforce LGPS? (Scheduled bodies) Another existing scheme - DB or DC? Adjust to accommodate auto-enrolment Consolidate existing arrangements? Set up new DC scheme (8% min cont 3% min from ER) Or packaged solution Broader workplace savings solution (pension, ISAs, cash account) e.g. Mercer Workplace Savings Difficult for smaller employers to access cost-effective solution (mercer-elect, pooled) Minimum compliance option Targeted mainly at low earners Low contribution limit means less targeted at higher earners NEST / DC not an option for Scheduled body to auto-enrol into Different solutions for each segment? Nursery scheme before feeds into main scheme? Flexibility? Complexity? Will be driven by employer objectives and capacity to implement For some employers a range of options for auto-enrolment scheme

MERCER 9 01/06/2014 Overview of Auto Enrolment Key areas to consider The introduction of Auto Enrolment will increase costs on employer. Not just through increased employer pension contributions but: Increased administration costs Potentially more staff required – can your current teams cope with an increase in workload? System costs – do your systems need updating or can the existing system even be updated? One off projects costs for enrolling existing staff who are not a member of your existing pension arrangements prior to or at staging date Cost Considerations

MERCER 10 01/06/2014 Overview of Auto Enrolment Key areas to consider Co-ordinate staging date auto-enrolment & opt-out processes Ongoing eligibility monitoring / tracking Co-ordinate voluntary opt-in process Co-ordinate auto-re-enrolment & opt-out processes Provide records / liaise with Pension Fund Operational impacts

MERCER 11 01/06/2014 Overview of Auto Enrolment Key areas to consider Records will have to be kept (6 years, or 4 years for opt-out notices), and shown to TPR on request TPR will use these records to check employers have undertaken enrolment and opt out correctly Additional record keeping requirements

MERCER 12 01/06/2014 Overview of Auto Enrolment Key areas to consider Those being auto-enrolled Those not being auto-enrolled Those already participating in a qualifying pension arrangement Those subject to waiting period Those subject to transitional period All subject to strict timescales Communication

MERCER 13 01/06/2014 Impact on Payroll Impact on HR systems Auto-enrolment Impact on Payroll & HR Systems Lets focus on:

MERCER 14 01/06/2014 Automatic enrolment date is latest of the dates on which a job holder: –Starts employment with the employer –Reaches age 22 –Earnings reach the standard personal tax allowance (£8,105 in 2012/13) –Possible 3 month waiting period Job holder is under age 22 but has qualifying earnings –Can ask to join –Employer must pay contributions Job holder is under qualifying earnings level –Can ask to join –Employer contributions are not payable Auto-enrolment How to start – consider member treatment

MERCER 15 01/06/2014 John joins at 21John reaches 22John reaches 24 Declines membership Auto-enrolment communication Payroll is updated Contributions commence Pension scheme records updated John opts-out Payroll is updated Contributions cease; refund paid. Diarise for re-enrolment dates broadly every 3 years He wants to opt in Communications issued etc Auto-enrolment Practical example

MERCER 16 01/06/2014 Auto-enrolment Practical example HR send Payroll new joiner information Payroll calculates, deducts and submits contribution payment Usual contribution submission by 19 th day of following month is eased by the Auto-enrolment legislation Allows a process to be set up for holding onto contributions for members during opt-out period up to end of 2 nd month after auto-enrolment date Reconciling contributions – potential headache

MERCER 17 01/06/2014 From what youve heard, what impact will compliance with Auto-enrolment have on your existing HR & Payroll systems? A. No change B. Minimal change C. Significant change D. Dont know

MERCER 18 01/06/2014 Auto-enrolment What else and what next Operational risk of auto enrolment –Large numbers of employees to be enrolled at one point in time –Brings risk to the employer and their pension arrangements –Specific project needed to achieve a successful staging process –Considerable revision of processes for steady state beyond staging date Opting out –Employer must be removed from this process –Brings risk of break down in communications Auto re-enrolment –Employer duty –Process to identify who needs to be re-enrolled and when

MERCER 19 01/06/2014 Data hub / Middleware Basic concept Employers HR & Payroll Data Hub Pension e.g. LGPS Pension e.g. USS Pension e.g. Defined Contribution Pension e.g. NEST Pension e.g. Teachers

MERCER 20 01/06/2014 Auto Enrolment Summary Significant exercise – typically expected to take around 12 to 18 months, so need to start now – will require strong project management skills & pressure on resource Something all employers need to address – Payroll Providers will not solve all issues Set up a working party from Finance, HR, Payroll & Pensions teams responsible for driving through the required changes External advice and experience available to help support working party Set up Project Plan to manage auto-enrolment process Identify those areas to be addressed where have internal expertise/capacity & those areas where external help needed Assess estimated costs of changes and extra employer contributions Make allowance in budget for these additional costs

MERCER 21 01/06/ Step Planning Process - Auto enrolment project overview

MERCER 22 01/06/2014 Contact Details: Rob White Any questions ….

Appendices

MERCER 24 01/06/2014 A jobholder is a worker who ordinarily works in the UK, is between 16 and 75 years of age and is paid qualifying earnings in relation to a particular employment Qualifying earnings are earnings between £5,715 p.a. and £42,475 p.a. (in 2012/13 terms) for annual pay reference periods The staging date for each employer is set out in legislation and is based on employer size, as measured by the number of employees on the PAYE payroll A qualifying scheme is a scheme that meets certain minimum requirements in respect of contributions or benefits provided An automatic enrolment scheme is a qualifying scheme that meets additional requirements for automatic enrolment to occur A worker is an employee of the employer (including contract and agency workers) Auto-enrolment Terminology

MERCER 25 01/06/2014 Auto-enrolment Practical example – Items to be communicated to employees What is auto-enrolment and why happening? Date employee will be affected Scheme contact details Employee and employer contributions by pay reference period –and that Employee contributions will be deducted from pay Employer responsibility to maintain membership of auto-enrolment scheme Right to opt out during the opt out period as if never joined scheme –the start and end date of the opt out period Source of opt out form (not from employer) and factual implications of opting out (legislation prevents employer from encouraging opt-out)

MERCER 26 01/06/2014 Auto-enrolment Practical implications – Items to be communicated to employees (Contd) Refund of contributions Right to opt in again Option to opt out even after the opt out period (treated as a scheme leaver) Notification of auto re-enrolment Tax treatment Contact for further information And anything scheme specific… –Scheme booklet –Nomination forms –Additional Voluntary Contributions –And so on……

MERCER 27 01/06/2014 Presentation This presentation has been prepared for the purpose of providing an update to employers participating in the Derbyshire County Council Pension Fund in relation to the Local Government Pension Scheme. We do not accept liability to any third party in respect of this information; nor do we accept liability if this presentation is used for any purpose other than that stated. This presentation contains confidential and proprietary information of Mercer Limited (Mercer) and is intended for the use of Mercer and our clients. The report may not be modified, sold, or otherwise provided, in whole or in part, to any other person or entity without Mercers written permission.

Mercer Limited is authorised and regulated by the Financial Services Authority Registered in England No Registered Office: 1 Tower Place West, Tower Place, London EC3R 5BU