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Understand the essentials of pension auto-enrolment
- 1. Understanding the Essentialsof Pensions Auto-Enrolment Colin Walker Independent Financial Adviser
- 2. Today we willlook at ∗ Employer concerns! ∗ Preparing for Automatic Enrolment ∗ When do I have to have my scheme in place? ∗ Who is eligible for Automatic Enrolment? ∗ Employee Communications ∗ Contributions – phasing In ∗ Opting Out
- 3. Today we willlook at ∗ Additional Requirements ∗ Enforcement & Record Keeping ∗ Employers- who deals with Auto Enrolment Issues? ∗ What makes a scheme qualifying? ∗ Is there anything I can do to fund this more efficiently? ∗ Questions
- 4. 1.3m UK employers Approx280,000 employers Pay less than a 3% Approx 750,000 employers Currently offer no provision Approx 270,000 employers Pay more than 3% Source: ttp://www.dwp.gov.uk/docs/factsheet-impact-reforms-sept09.pdf
- 5. • 67% ofrespondents said employers are concerned by the cost of meeting the long-term compliance requirements. • 38% of respondents said employers are worried about ensuring they have an efficient way of integrating auto-enrolment with their payroll functions to gather accurate contribution, opt-out and employee profile data. • 33% of respondents said employers are concerned about putting a compliant pension scheme in place in time for their staging date. * Survey carried out by Aviva - September 2012 Employer Concerns!
- 6. ∗ Auto EnrolmentOctober 2012- February 2018 ∗ Staging date depends on employer size, but can be brought forward ∗ Employer must enrol eligible employees (job holders into qualifying Scheme) ∗ Provide information to all employees ∗ Eventually Employer required to pay 3% & Employee 5% of qualifying earnings (minimum 8% overall) ∗ Register with TPR and keep records ∗ 4-8 million new savers in workplace from 2012 ∗ Additional £10bn-15bn annual savings by 2050 What’s Happening And When?
- 7. Preparing for AutomaticEnrolment Employer-no scheme ∗ Find out Staging Date ∗ Assess the workforce ∗ Determine earning definitions ∗ Calculate costs ∗ Consider scheme type ∗ Communicate to workers ∗ Plan implementation ∗ Enrol eligible job holders ∗ Register with TPR & keep records ∗ Contribute to workers pensions Employer-with scheme ∗ Find out Staging Date ∗ Assess the workforce ∗ Review/determine earnings definitions ∗ Calculate Costs ∗ Review existing Scheme ∗ Consider scheme type ∗ Communicate changes/terms to workers ∗ Plan implementation ∗ Enrol eligible job holders ∗ Register with TPR & keep records ∗ Contribute to workers pensions
- 8. When do Ihave to have my scheme in place? Employer Staging Dates Employer size Auto-enrolment staging date PAYE scheme size Staging date 120,000 or more 1 October 2012 50,000-119,999 1 November 2012 30,000-49,999 1 January 2013 20,000-29,999 1 February 2013 10,000-19,999 1 March 2013 6,000-9,999 1 April 2013 4,100-5,999 1 May 2013 4,000-4,099 1 June 2013 3,000-3,999 1 July 2013 2,000-2,999 1 August 2013 1,250-1,999 1 September 2013 800-1,249 1 October 2013 500-799 1 November 2013 350-499 1 January 2014 250-349 1 February 2014 50-249 1 April 2014 to 1 April 2015 Test tranche <30 Employees 1 April 2015 to 30 June 2015 30-49 Employees 1 August 2015 to 1 October 2015 Less than 30 Employees 1 January 2016 t0 1 April 2017 New Employers 1 May 2017 to 1 February 2018 The rules for staging within each size grouping have still to be confirmed.
- 10. Who is eligiblefor Automatic Enrolment? Assessing and categorising the workforce 2013/2014 levels Qualifying Earnings Age < £5,668 £5,668 - £9,440 > £9,440 16-21 Entitled Worker Non-eligible jobholder Non-eligible jobholder 22-SPA Entitled Worker Non-eligible jobholder Eligible jobholder SPA-75 Entitled Worker Non-eligible jobholder Non-eligible jobholder
- 11. Pay Reference Period 2013-2014Annual 1 week Fortnight 4 weeks 1 month 1 quarter Bi-annual Lower level of qualifying earnings £5,668 £109 £218 £436 £473 £1,417 £2,834 Earnings trigger for automatic enrolment £9,440 £182 £364 £727 £787 £2,360 £4,720 Upper level of qualifying earnings £41,450 £797 £1,594 £3,188 £3,454 £10,363 £20,725 Current Earnings Thresholds 2013-2014
- 12. Employee Communications ∗ Advisingthe ‘assessed workforce’ about Automatic Enrolment process ∗ Set time limits ∗ Advise employees of their right to ‘opt-out’ ∗ Tell them how they may be affected (changes if an existing member, what it means for those not already a member) ∗ Must be in writing, can include email - gather/provide email addresses
- 13. A/e date Employer givesinfo to jobholder Contract deemed Auto-enrolment process Info window max.1 mth 1st contribution collected on payday Jobholder opts out 2nd contribution collected on payday Opt-out period – 1 mth (6wks if invalid) Refund – 1 mth Employer reimburses contributions Provider/scheme gives info to jobholder
- 14. Contributions – phasingin Based on Qualifying Band Earnings Steady State Defined contribution 1% employee contribution 3% employee contribution 5% employee contribution Defined contribution 1% employer contribution 2% employer contribution 3% employer contribution Staging period
- 15. Opting Out Opting out EngageYour workforce 1 month Window Opt out Notice Fill in Notice Refund Worker Inform Provider Refund Employer Review Engage your Workforce 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 every 3 years.
- 16. Additional Requirements All Employerswill have additional regulatory requirements ∗Employers prohibited from incentivising opt outs ∗Register with TPR to show they are meeting their duties (TPR will write to all Employers) ∗Payments will be monitored by Administrators or Scheme Trustees who need to report failures ∗Must keep records for 6 years ∗Must retain Opt in & Opt Out notices for 4 years
- 17. Enforcement Fines from theRegulator Stage 1 - A compliance/unpaid contribution notice Stage 2 - Fixed penalty of £400 Stage 3 – Escalating daily penalties Number of Persons Prescribed daily rate 1-4 £50 5-49 £500 50-249 £2,500 240-499 £5,000 500+ £10,000
- 18. Record keeping ∗ Responsibilitywith Employer ∗ Records about jobholders & workers – via payroll records? name, NI, opt-in, joining notice ∗ Records about scheme pension scheme reference, scheme name & address ∗ 6yrs minimum (opt-outs 4yrs) ∗ Capable of Regulator scrutiny if requested
- 19. Number of Employees PensionsDept/Human Resources ? ‘Payroll’ Organisation Employers – Who Deals With Auto Enrolment Issues? large medium small
- 20. What makes ascheme qualifying ∗ Does it permit Automatic Enrolment? ∗ Are employees enrolled automatically within 3 months of joining? ∗ Does the scheme have a “default” investment option? ∗ Recognising the likely characteristics & needs of employees ∗ Appropriate balance between risk & return ∗ Glide path to safer assets as retirement approaches ∗ Does it meet one of the minimum contribution tests? ∗ Does it have an opting out facility?
- 21. Qualifying scheme choice Choicesfor employers Existing defined benefit & defined contribution schemes New defined contribution auto enrolment schemes Existing/new NEST
- 22. ∗ Chosen schememust operate automatic enrolment - no member decisions or actions ∗ Adjust existing Group Personal Pension or Occupational Pension? ∗ Or set up new scheme? ∗ Different solutions for employees – min contributions for some, higher for others? ∗ Combined GPP and NEST solution? − Lower earners, highly transitional employees go to NEST, others to GPP − Non-discriminatory Types of Scheme?
- 23. Types of Scheme? ∗A qualifying scheme: – PP or occupational scheme – minimum contribution level met ∗ An A/E scheme is a qualifying scheme that: ∗ can auto-enrol jobholders ∗ initially and every 3yrs ∗ no member action or decisions ∗ Can be a private scheme or NEST
- 24. NEST Scheme DC occupational scheme Trusteecorporation Administration Tata Charges 0.3% AMC Charge on contributions of 1.8% Decumulation Self-service decision Focused choice – panel of providers Investment Very cautious
- 25. “…the overarching viewis that salary sacrifice is here to stay, and will prove to be a valuable tool for advisers looking to manage the transition to auto enrolment.” Source: Corporate Adviser – September 2010 Is there anything I can do to fund this more efficiently?
- 26. Arrangement betweenthe Organisation and employee to give up part of their future earnings (salary) in return for a non-cash benefit The non-cash benefit is a contribution by the Employer to the Employee’s pension plan Reduced earnings means reduced liability to income tax and National Insurance Nominal Salary can be used – other employee benefits What is salary sacrifice? Note: all views expressed in relation to salary and bonus sacrifice are based on our understanding of the procedures adopted by an Organisation, and current taxation law and HM Revenue & Customs practice, which may change.
- 27. Salary Sacrifice take home, £0.68 NI, £0.12 tax, £0.20 Forevery £1.00 earned.... ∗ 68 pence in your hand ∗ Grossed up for Tax Relief, still only 85 pence. ∗ Or using Sacrifice, original £1.00 + Employer National Insurance saving of 13.8% ∗ Produces new employer contribution of £1.14! This information is based on a Basic Rate Tax Payer for 2012/2013
- 28. Without salary sacrifice With salary sacrifice Yourgross earnings £30,000.00 £28,200 (£30,000 - £1,800) Income tax on your gross earnings £3,752.00 £3,752.00 NI contributions on your gross earnings (12%) £2,669.40 £2,453.40 Employee (gross) pension contribution (with tax relief added) £1,800.00 £0 Total employer contribution to your pension plan a year £2,700.00 £4,500 (includes the additional £1,800 sacrificed Take-home pay £21,778.60 £21,994.60 Salary sacrifice – a tax efficient way to saveWe’ve assumed: • you’re earning £30,000 a year (20% basic rate tax payer) • you’re contributing £1,800 (6% of your pensionable salary) • your employer is contributing £2,700 (9% of your pensionable salary)
- 29. ∗ 1st January2013 ∗ Changes to Adviser Remuneration ∗ Abolition of Commission ∗ Financial Adviser Charge ∗ How is this paid? ∗ Fees Retail Distribution Review
- 30. ∗ The PensionsRegulator – ∗ http://www.thepensionsregulator.gov.uk/employers.aspx ∗ [email protected] ∗ Phone: 0845 600 0707 Useful Links & Numbers
- 31. CONTACT DETAILS Colin Walker Keegan& Pennykid (Insurance Brokers) Ltd 50 Queen Street Edinburgh EH2 3NS Tel: 0131 243 9660 Email: [email protected] www.keegan-pennykid.com
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