Preparing for Auto-Enrolment

CBI Pensions Conference 2011

29th September 2011

Adrian Waddingham

The Pensions Regulator

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9 ‘simple’ guides to help employers comply with Automatic Enrolment...

Establish the “staging date”

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PAYE size at 1 April 2012 Default staging date

120,000 or more 1 Oct 2012

10,000 to 19,999 1 Mar 2013

3,000 to 3,999 1 Jul 2013

250 - 349 1 Feb 2014

50 - 89 1 Jul 2014

<50 1 Mar 2014 – 1 Feb 2016

New employers 1 Mar 2016 – 1 Sep 2016

Employers may apply to bring forward their staging date. The

Pensions Regulator will write with 12 then 3 months notice

Qualifying Criteria

• Must allow employer to automatically enrol,

opt in and re-enrol a jobholder

• Must not require the jobholder to express a

choice or provide any information

• Must be a tax-registered occupational

or personal pension scheme

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Some non-UK pension schemes can be

qualifying (separate criteria apply) but cannot

meet the automatic enrolment criteria

ELIGIBLE

JOBHOLDER

NON-

ELIGIBLE

JOBHOLDER

NON-

ELIGIBLE

JOBHOLDER

ENTITLED

WORKER

Earnings Above £7,475

(2011/12

terms)

Above £5,035

(2006/7 terms)

but below

£7,475

Above £7,475

(2011/12

terms)

Below

£5,035

(2006/7

terms)

Age 22 to State

Pension Age

16 to 75 16 to 22 16 to 75

Eligible for

auto

enrolment?

Yes No No No

Eligible for

company

contributions?

Yes Yes Yes No

Can choose to

opt out?

Yes May opt in May opt in May join

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Minimum Requirements – DB schemes

OK if contracted-out of the

State Second Pension

OK if meeting the “test scheme standard”

− Broadly 1/120ths of qualifying earnings

from State Pension Age

• CARE schemes subject to additional

requirement for annual revaluation of benefits

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All qualifying schemes must be UK tax-registered

occupational or personal pension schemes

Minimum Requirements – DC schemes

2% total contribution

3%

employer

8% total

2%

employer

5% total

October

2017

1% employer contribution

October

2016

October

2012

Staging period

• Based on contribution rate

• % of qualifying earnings ie £5,035pa to £33,540pa in 2006/7 terms - to be updated in Jan 2012

• Phasing in of minimum contributions

Not yet known how salary sacrifice be treated

DC schemes Certification alternative • Flexibility where pensionable earnings not

based on qualifying earnings

• Proposed options recognise pay from the first £1 of earnings

• Three options: (1) base pay, (2) pensionable pay at least 85% of total pay and (3) total pay

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(1) 3%

(2) 2%

(3) 2%

(1) 4%

(2) 3%

(3) 3%

(1) 9%

(2) 8%

(3) 7%

(1) 3%

(2) 2%

(3) 2%

(1) 6%

(2) 5%

(3) 5%

October

2017

(1) 2%

(2) 1%

(3) 1%

October

2016

October

2012

Staging period

Minimum total

contribution

Minimum employer

contribution

Minimum Requirements: Hybrid plans

• Neither DB nor DC but which

generally have elements of both

− e.g. cash balance, fixed benefit

• Depending on type, will need

to meet DB or DC requirements,

or a combination of both

• DWP to issue further details and guidance

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National Employment Savings Trust

(NEST) • Aimed at low earners and micro employers

• Trust-based multi-employer DC scheme

• NEST needed as DC pension providers declined to offer existing products to target group due to profitability

• Cap on contributions of £4,200 pa (in 2011/12 terms)

• No transfers in or out normally allowed

• Will qualify for automatic enrolment

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Perhaps use for entitled workers or specific

high turnover, low paid employee groups.

You can use more than one scheme.

NEST investments

Long Term

Mid Term

Short Term

Risk

NEST Approach

Traditional Approach

• Intended default investment approach

begins with low risk: NEST feels that

target group may react badly to losses

… could restrict scope for long term growth

… and flies in the face of current convention!

NEST – taking benefits

• The same as other UK registered schemes

• Benefits available from age 55

• Tax free lump sum = 25% fund value

• Trivial commutation allowed

• Retirement options and process?

High ambition for online administration and

“decumulation” without advice – at odds with the

circumstances of the target group?

When to automatically enrol

• The first date a worker meets the

criteria to be an eligible jobholder

• Employers can choose to postpone

automatic enrolment for up to 3

months

(must give information to the eligible

jobholder and he/she may opt in)

• Employers can postpone automatic

enrolment to a DB/hybrid scheme up

to October 2016 (conditions apply)

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Opting out

• Ongoing membership of a pension plan not compulsory

• Jobholders may choose to opt out By giving an Opt-Out Notice within the opt-out period

… after having been enrolled into a pension scheme

… and having received the enrolment information

• Entitled workers have no opt-out rights But do have a 30 day cancellation period

(personal pension schemes)

• It is not possible to opt out after the opt-out period has ended but jobholders may cease active membership − Entitled workers may do this at any time

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The opt-out period

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Auto-enrolment

date

Joining window

Window for possible opt-out period

Earliest possible

start date for

opt-out period

Earliest possible

date opt-out

period ends

Latest possible

date opt-out

period ends

1 month 1 month

Latest possible

start date for

opt-out period

If opt-out period started early in joining window, may be

possible to reach end of opt-out period before contributions

passed to the pension scheme – may ease refund process

The opt-out notice and refunds

• The opt-out notice must normally be provided from

the pension scheme and NOT the employer

− due to concerns over employers pressurising opt outs

− exception – occupational scheme in-house administration

• The employer must check opt-out notice is valid and, if so:

− stop deducting contributions

− let the scheme know

− issue any refunds

• Time limits for contribution refunds

− Must not wait to get contributions back from the pension scheme

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Occupational schemes normally allow refunds outside

the opt-out period on ceasing active membership within

two years - the Government plans to address this

Tax issues

• “Enhanced” and “Fixed Protection” from

the “Lifetime Allowance”

− Generally do not permit further benefit accrual

− Likely to be retained if an eligible jobholder is

automatically enrolled but subsequently opt outs

• Jobholders enrolled on a “salary sacrifice “

− Can the salary sacrifice

arrangement be cancelled?

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Start preparing

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Step 1 • Establish the staging date and prepare a project plan

Step 2

• Assess the workforce to determine the likely Auto-Enrolment responsibilities and financial implications

Step 3

• Assess which pension schemes are to be used and for whom. Review and make amendments where necessary.

Step 4

• Review the internal procedures, including payroll, joining and opting out processes

Step 5 • Prepare communications and documents

Enquiries: email autoenrol@barnett-waddingham.co.uk