PENSIONS AUTO-ENROLMENT Neil Bhan DAC Beachcroft LLP 5 March 2013

Agenda  Overview of duties for employers  Assessing your workforce  Your obligations  What type of pension scheme?  Contributions  Required information & communications  Automatically enrolling, opting out, opting in, re- enrolment  Reducing costs

Overview of new duties for employers  New laws came into effect from 1 October 2012  Auto-enrolment applies to eligible jobholders  Qualifying pension scheme / automatic enrolment scheme  Who is affected? Employers required to contribute  Opt out only possible after being auto-enrolled  Date changes come into effect: your staging date

Overview of new duties cont.  Administer a re-enrolment process every 3 years  Administer and process opt-out notices  Pay refunds if jobholder opts out  Adhere to safeguards to ensure compliance

Your staging date  Planning for auto-enrolment stems from knowing your staging date  Based on number of people in your PAYE scheme on 1 April 2012  Planning for implementation will take time so the earlier the better

Assessing your workforce  Four main groups:  eligible jobholders  non-eligible jobholders  entitled workers  others (“non-entitled workers”)  Thorough assessment of workforce required - this determines what you are required to do to comply with your employer duties

Eligible jobholders  Your employees or workers who:  work (or ordinarily work) in the UK;  are aged at least 22 and under state pension age; and  are paid “qualifying earnings”  Qualifying earnings = earnings above automatic earnings threshold (currently £8,105)  Automatic enrolment date (AED) = date satisfies above  Earnings includes bonuses, overtime, statutory maternity, paternity or adoption pay

Non-eligible jobholders  Your employees or workers who:  work (or ordinarily work) in the UK;  are aged between 16 and under 75; and who either:  have qualifying earnings (currently) between £5,564 and £8,105, or  earn more than £8,105 of qualifying earnings but are aged:  between 16 and 21; or  between state pension age and 74

Entitled workers  Your workers who:  work (or ordinarily work) in the UK;  are aged between 16 and 74; and  earn below the qualifying earnings threshold (i.e. currently £5,564)  Non-entitled workers  Anyone who doesn’t fall within the 3 other categories

Your obligations to eligible jobholders  Ensure all are enrolled into a qualifying scheme  Determining who are already in a qualifying scheme and automatically enrolling those who are not into an automatic enrolment scheme  Pay contributions on qualifying earnings (currently on all earnings between £5,564 and £42,475)  Provide prescribed information about the pension arrangements and employer duties  Automatically re-enrol any eligible jobholders not enrolled into qualifying scheme every 3 years

Your obligations to non-eligible jobholders  Provide prescribed information about the pension arrangement and right to opt in  Allow membership of scheme if individual opts in  Membership on same basis as eligible jobholder i.e. employer obliged to pay contributions on qualifying earnings

Your obligations to entitled workers  Provide prescribed information about the pension arrangement and right to join  Allow membership of scheme if individual asks to join  No employer contributions required

Your obligations to all workers  Keeping records  Registering with the Pensions Regulator  Providing notification if using a waiting period  Providing prescribed information about the pension arrangement  Adhering to safeguards to ensure compliance

Issues in assessing your workforce  This will take time, especially if you have a large or complicated workforce  Who are “workers”?  broad definition – covers permanent and temporary workers  can include agency workers  may include casual workers or on zero hours contracts  “works (or ordinarily works) in UK” – look at who travels or is seconded to work in different countries?

Issues in assessing your workforce  Thresholds for age and earnings  ages will constantly change and earnings may fluctuate  data challenges - your systems need to cope with the triggers in your duties  Qualifying earnings  you use a pay reference period to determine if someone is eligible or not  these will be reviewed annually by the Government and may change

Reviewing your pension arrangements  You can only auto-enrol eligible jobholders into an automatic enrolment scheme:  a qualifying scheme i.e. tax registered occupational or personal pension scheme which is able to meet minimum requirements; and  meets automatic enrolment criteria i.e. no barriers, minimum level of contributions or benefits  Do you have an existing scheme you can use or adapt?  Do you need to set up a new scheme?

Which scheme?  No right or wrong scheme to select – depends on make-up of your workforce  Do you want different schemes for different categories of workers?  Do you want to move workers from one scheme to another as career and earnings progress?

Contributions  Must pay minimum level of contributions  Exact amount depends on type of pension scheme used  DC schemes - minimum contribution levels phased in:  year 1 to 5 - employer and employer contribution each 1% of qualifying earnings*  year 6 – employer 2% / employee 3%  year 7 onwards - employer 3% /employee 5% *self certifying - contributions also phased in similarly

Prescribed information  Depends on category of worker  Eligible jobholders:  they have been, or will be, automatically enrolled, or (if applicable) are a member of a qualifying pension scheme  if being automatically enrolled:  what this means for them  they can opt out  Generic statement re finding info about pensions and retirement saving + scheme details

Prescribed information cont.  Non-eligible jobholders:  they have right to opt in to automatic enrolment scheme  what it means to exercise right to opt in  if do opt in, must be provided with same auto- enrolment information as for eligible jobholders  Entitled workers:  they have right to join a pension scheme  what it means if they exercise their right to do so

Prescribed information cont.  All workers:  if you are operating a 3 month waiting period, you must tell all workers you are doing so within 7 days of start of waiting period  All information to be provided within prescribed timeframes:  relevant enrolment information to be provided within 1 month of AED/following expiry of waiting period  within 2 months of your staging date, to tell workers they are already a member of qualifying pension scheme

Waiting periods  Employers may elect up to a 3 months’ waiting period before a jobholder becomes entitled to an AED  Waiting periods can be used in 3 situations:  from your staging date (i.e. jobholder already employed at that date)  from 1 st day of jobholder’s employment with you  from 1 st day jobholder already in employment becomes eligible for auto-enrolment  Waiting periods can vary between workers/groups  Note: jobholder in waiting period can voluntarily opt in to automatic enrolment scheme during waiting period

Communications with employees  Developing your communications strategy will take time  Information must be provided in writing – includes sending it by but providing internet/intranet site or displaying poster not sufficient  Communications are to be neutral  DWP has published “employer toolkit” i.e. examples of employee communications  Your processes must be robust enough to ensure right information sent to right individual at right time

Automatically enrolling your jobholders  At jobholder’s AED or end of waiting period, must become an active member of a qualifying pension scheme  You must start calculating contributions and deducting from pay with effect from AED  Must enrol non-eligible jobholders who have opted-in within 1 month of enrolment date

Opting out  Jobholder who has become active member has 1 month to opt out of active membership  Runs from later of:  date jobholder became active member; and  date jobholder given enrolment information  Notice to opt out must be provided by scheme and contain certain information (Pensions Regulator sample wording)  Entitled to full refund within 1 month from date you are given valid opt-out notice (employer refund also)

Opting in  Individual can opt-in in 3 circumstances:  is a non-eligible jobholder  had opted out after being auto-enrolled previously, but changed mind  eligible jobholder during waiting period  Entitled worker has right to join  Individuals only entitled to submit 1 opt-in notice in any 12 month period

Re-enrolment processes  You will be required to automatically re-enrol eligible jobholders in qualifying scheme every 3 years after date you became subject to employer duties  Doesn’t apply to jobholders who opted out in 12 months leading to re-enrolment date  6 month window of 3 rd anniversary of staging date (or re-enrolment exercise) to re-enrol  Same processes and information applies to re- enrolment as to auto-enrolment  Your processes will need to be adapted to allow for this

Planning and time required  Some matters will require decision making across different functions e.g. HR, Finance, Operations etc.  Need to understand costs of compliance  What is best model: lowest cost v administration ease  Assess your internal processes – what do you need to do regarding your HR & payroll processes to comply  Assess your workforce  Develop your communications strategy  How will records be kept and by whom  Implement your pension arrangements/changes req’d?

Any questions? Neil Bhan Partner - Employment and Pensions Group DAC Beachcroft LLP 100 Fetter Lane, London EC4A 1BN T: +44 (0) M: +44 (0) E: