PENSIONSAUTO-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 1st day of jobholder’s employment with you from 1st 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 email 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 3rd 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 BhanPartner - Employment and Pensions Group DAC Beachcroft LLP100 Fetter Lane, London

EC4A 1BN

T: +44 (0)20 7894 6512 M: +44 (0)7738000060 E: nbhan@dacbeachcroft.com