AUTOMATIC ENROLMENT WHAT ARE THE RULES? WHAT DOES IT MEAN FOR EMPLOYERS? ROBERT COCHRAN 13 TH MAY 2014 The slides are authorised for use by accredited Scottish Widows staff in corporate pensions presentations to employers, trustees and UK financial advisers and should not be distributed to or relied upon by any other person.

AGENDA HOW BIG A CHANGE IS AUTOMATIC ENROLMENT? WHAT ARE THE RULES? IMPACT ON EMPLOYERS Q&A 2 RULES

HOW BIG A CHANGE 3 A tidal wave of schemes and new members is set to hit the UK pensions providers. Corporate Adviser, September 2013

CAPACITY PRESSURE FOR ALL million employers 21,000 advisers How many schemes per adviser? 64 How many schemes have been written in the last 20 years? 200,000

HOW BIG A CHANGE 5 0% Employers High Provision without a Waiting Period Employment High Provision with a Waiting Period Borderline ProvisionPoor ProvisionNo/Shell Provision 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% This chart illustrates the proportion of employers and employees falling into each of these five categories. Source: Employer Pension Provision Survey 2009, Department for Work and Pensions.

WHO’S ELIGIBLE FOR AUTOMATIC ENROLMENT? 6 QUALIFYING EARNINGS AGE<£5,772£5,772-£10,000>£10, Entitled workerNon-eligible jobholder 22-SPAEntitled workerNon-eligible jobholderEligible jobholder SPA -75Entitled workerNon-eligible jobholder ASSESSING AND CATEGORISING THE WORKFORCE 2014/2015 LEVELS Eligible jobholder

IT’S ALL ABOUT THE QUALITY OF THE DATA 7 EXTRACT (RECIEVED AUGUST 2013) – STRUGGLING WITH DATA ISSUES I’ve opted for Plan B. We’re asking all employees to come to the NEC in Birmingham tomorrow. We’ll then do a hands up as to whose in a pension plan, they can then go. Who’s 21 or under, or over state pension age, they’re on the bus out immediately. Next out are those earning less than £787. With the remainder, we’ll ask them who they are, where they live, what their NINO is, address, and so on. They’ll then be auto enrolled and will be free to leave. This will be called the Thomson Pettigrew auto enrolment method, similar in its eventual complexity to the Duckworth Lewis method for determining who’s won in a game of cricket shortened by rain. Seriously though, I’m sat with an envelope and pen, and would appreciate a little help. Can you call me when you’re free, please?

CONTRIBUTIONS – PHASING IN 8 BASED ON QUALIFYING BAND EARNINGS

SIMPLIFIED CERTIFICATIONS OPTIONS 9 EMPLOYER MINIMUMMINIMUM TOTAL Full basic salary (pensionable pay)4%9% Full basic salary, and at least 85% of total pay is pensionable 3%8% Total earnings (P60)3%7% QUALIFYING EARNINGS DEFINITION (2014/15) – P60 INCOME FROM £5,772 TO £41,685

OPTING OUT 10 Every 3 years OPTING OUT Engage your workforce REVIEW Engage your workforce 1 month window Opt out notice Fill in notice Refund worker Inform provider Refund employer 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.

ADDITIONAL REQUIREMENTS 11 ALL EMPLOYERS WILL HAVE ADDITIONAL REGULATORY REQUIREMENTS Employers prohibited from incentivising opt outs. Register with TPR to show they are meeting their duties. Payments will be monitored by administrators or scheme trustees who need to report failures. Must keep records for six years. Must retain opt in and opt out notices for four years CHECKLIST

EMPLOYERS – WHO DEALS WITH AUTOMATIC ENROLMENT ISSUES? 12 LARGE MEDIUM SMALL PENSIONS DEPARTMENT/ HUMAN RESOURCES PAYROLL OWNER

EMPLOYERS NEED TO BE THINKING ACROSS THREE AREAS 13 HR, Payroll & Finance Change to Systems/Processes Hard cost of contributions Compliance and registering Administration Set up & Day 1 costs Ongoing costs Eligible employee Non eligible employees Avoiding risk and failure Governance Framework

I’M AN EMPLOYER – WHAT DO I NEED TO KNOW? 14 When do I have to have my scheme in place? Who do I have to enrol into the scheme? How much is it going to cost? What are my options in terms of providing an eligible scheme? Is there anything I can do to fund more efficiently? What systems do I need for the administration? ?

WHEN DO I HAVE TO HAVE MY SCHEME IN PLACE? 15 EMPLOYER SIZEAUTOMATIC ENROLMENT STAGING DATE 120,0001 October , ,9991 November ,000-49,9991 January ,000-29,9991 February ,000-19,9991 March ,000-9,9991 April ,100-5,9991 May ,000-4,0991 June ,000-3,9991 July ,000-2,9991 August ,250-1,9991 September ,2491 October November January February April 2014 to 1 April 2015 Test tranche <30 employees1 April 2015 to 30 June 2015* employees1 August 2015 to October 2015 Less than 30 employees1 January 2016 to 1 April 2017 New employers1 May 2017 to February 2018 The rules for staging within each size grouping have still to be confirmed EMPLOYER STAGING DATES * Please note that there are nine staging dates within this period, depending on the employer’s size. For further information, please visit The Pension Regulator website.

WHO DO I HAVE TO ENROL AND HOW MUCH WILL IT COST? 16

EMPLOYER REPORT 17 Staging date calculation. Employer timeline. Check certification of existing scheme. Workforce assessment. Employer cashflow modeling.

WHAT ARE MY OPTIONS FOR PROVIDING AN ELIGIBLE SCHEME? 18 Defined Benefit occupational trust based. Defined Contribution occupational trust based. Group Personal Pension. Group Stakeholder. Multi Employer Trust. People’s Pension. Now: Pensions. Nest. Same contribution test.

IS THERE ANYTHING I CAN DO TO FUND THIS MORE EFFICIENTLY? 19 Source: Corporate Adviser, September 2010.

WHY SALARY EXCHANGE? 20 POTENTIAL INCREASED CONTRIBUTION OVER NORMAL NET PAY METHOD EARNINGS £30,000 EARNINGS £50, %17.7% * Assumes net take home pay remains the same, employer 100% NI reinvested.

PREPARING FOR AUTOMATIC ENROLMENT 21 EMPLOYER – NO SCHEMEEMPLOYER – WITH SCHEME Finding out staging dateFind out staging date Assess the workforce Determine earning definitionsReview/determine earning definitions Calculate costs Consider scheme typeReview existing scheme Communicate to workersConsider scheme type Plan implementationCommunicate changes/terms to workers Enrol eligible jobholdersPlan implementation Register with TPR and keep recordsEnrol eligible jobholders Contribute to workers pensionsRegister with TPR and keep records Contribute to workers pension

ONLINE AUTOMATIC ENROLMENT SOLUTION – AN INTEGRATED APPROACH 22 Employer payroll file *Best Group Pension Provider Award, Corporate Adviser 2013.

PAYROLL PROVIDERS OR THIRD PARTY SOLUTIONS - WHAT CAN THEY DO? 23 Everything Partial Assessment & Contributions Communications Opt-outs Assessment Contribution Calculations Collect Contributions No AssistMe Back office link No AssistMe Back office link Nothing 1 Pass AssistMe 2 Pass AssistMe

ADEQUACY 24 MEDIAN INCOME EARNER…..SAVING FOR 40 YEARS. 30% 45% 60-66% 1 Automatic EnrolmentAdditional Savings state pension state pension & auto enrolment target income replacement rate Source: Making Automatic Enrolment work – Oct A New Pension Settlement for the 21 st century, second report, Pensions Commission, Nov 2005, Govt target by 2053

IMPACT 25 PENSIONS REPLACEMENT AMOUNT THROUGH AUTO ENROLMENT – 30 YEAR OLD SAVER ALL 68% ALL 44% ALL 28% £15,000 Salary £30,000 Salary £90,000 Salary Source: Scottish Widows Replacement Calculator

RETIREMENT EXPECTATIONS 26 Source: Scottish Widows UK Pensions Report, June 2013 Ninth Annual Pensions Report, Retirement savings across the nation.

WHAT CAN YOU EXPECT FROM YOUR PENSION PROVIDER? 27 What providers can do to help you make automatic enrolment a success. Benefit of experience. Technology to meet your needs. Robust communications. Education and employee engagement.

DISCLAIMER 28 This presentation represents Scottish Widows’ interpretation of current and proposed legislation and HM Revenue & Customs practice as at the date of publication – these may change in future. This material is for use by UK Financial Advisers only. It is not intended for onward transmission to private customers and should not be relied upon by any other person. Scottish Widows plc. Registered in Scotland No Registered Office in the United Kingdom at 69 Morrison Street, Edinburgh EH3 8YF. Telephone: Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number /13