Automatic Enrolment

Supporting youevery step of the way

Creating a road map for your business

John Carter DipPFS

Roadmap

•Background – Why Auto Enrolment•Employer Duties•Contribution options•Admin Duties•Middleware•Staff Communication

Why Auto Enrolment?

1981 2010 2051

1421

25.918

23.728.3

Historic and projected life expectancy at age 65 UK (years)

Men Women

Source: Office for National Statistics, Pension Trends Chapter 2, 16 February 2012.

People are living longer

2010/11 2015/16 2020/21 2030/31 2040/41 2050/51

84 92 97142

196250

Total projected expenditure on state pensions and re-lated benefits, 2011/11 to 2050/51

£billions, 2011/12 prices

Source: Office for National Statistics, Pension Trends Chapter 5, 27 October 2011.

It’s unaffordable

Inflated Retirement Expectations

• Basic State Pension is currently?

£110.15 per week (£5727.80 pa)

• For a £20K Personal Pension income

(Start Saving at 40)?

£799 per month

* assuming 7% growth and current annuity rates

Employer Duties

Employer Duties

• Implement an Auto Enrolment compliant pension scheme

• By the staging date set by the DWP

• Maintain the scheme in accordance with applicable legislation

EASY!!

The Rules

Assessing worker type

The different types of worker

Age (inclusive)

Earnings16 - 21 22 – SPA SPA - 74

Under lower qualifying earnings threshold - £5,668 or less

Entitled worker – can join

More than £5,668 up to £9,440 Non-eligible jobholder – can opt-in

Over automatic enrolment earnings trigger - £9,440 (up to £41,451 for band earnings)

Non-eligible jobholder – can

opt in

Eligible jobholderAUTOMATIC ENROLMENT

Non-eligible jobholder – can

opt in

* Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2012

11,000,000

Employees

1,200,000

Employers

When will it happen?

April2014

April2015

June2015

Aug2015

Oct2015

July 2012

Volu

ntar

y st

art

Oct2012

Feb 2014

250 or more 249to 50

“Test tranche”<30

49 to 30

<30 and no PAYE

Jan2016

Apr 2017

New employers

Apr 2012 to Sep 2017

May2017

Feb2018

It’s OK, I can wait until my staging date!

• Provider ability to respond?

• Availability of advice?

• Budget Planning?

• Timeframe for set-up

Capacity Crunch

Staging profile to May 2015

Source: payrollworld.com

Source: TPR / PW

And in real numbers ……..

Contribution Options& Scheme Design

Contribution options?

Defined Contribution – will be phased in to:

8% ‘Banded Earnings’ total

3% ‘Banded Earnings’ employer minimum

Jobholder can be required to make up the difference

‘Qualifying Earnings’

Between £5,668 - £41,450*

Includes overtime, SSP, SMP etc

* Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2012

Band Earnings Earnings thresholds:

0

£9,4401

£5,6681

£41,4501

Earn

ings

£

Not auto-enrolled

Contributions paid

Source: Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2012

Phasing

This is for the default “banded earnings” certification. Other certifications will vary.

Contractual entitlements are not considered in this example.

Source: Making automatic enrolment work, Report for the DWP October 2010

Transitional Duration Employer min Employee Total min

Period contribution Pays contribution

Phase 1 Employer's staging date 1% 1% 2%

to 30 September 2017

Phase 2 1 October 2017 to 2% 3% 5%

30th September 2018

1 October 2018 onwards On-going 3% 5% 8%

Contribution options3 additional certification options:

A minimum of 9% contribution of pensionable pay (including at least 4% employer contribution)

Source: Making automatic enrolment work, Report for the DWP October 2010

A minimum 8% of pensionable pay (3% employer) provided pensionable pay constitutes at least 85% of the total pay bill

A minimum 7% contribution of earnings (3% employer), provided that 100% of total pay is pensionable

OR

• “Qualifying Scheme” - The scheme already meets all of the AE requirements

Contribution options

0

£9,440

£5,668

£41,450

Earn

ings

£

8%

£50,000 Total earnings

Basic earnings

7% 9%8%

Basic earnings<15%

>15%

• 3 acceptable definitions:

CAN USE SALARY EXCHANGE

1. If the definition of pensionable pay is total earnings then a 7% contribution rate is acceptable2. If total pensionable earnings equate to at least 85% of the total wage bill, then 8% is acceptable3. If pensionable earnings are less than 85% of total earnings then a 9% contribution is acceptable

DEFAULT 1 2 3

Salary Exchange/Sacrifice

Pension Exchange Amount £147.06

Employer’s NI Saving £20.29

Total Invested ??????

£100 net employee contribution

Pension Exchange Amount £172.41

Employer’s NI Saving £23.79

Total Invested ??????

Basic Rate

Higher Rate

Potential Savings could offset the costs …………

30 employees @ £20.29 NI saving per month

Monthly Payroll Saving = £608.70

Annual Payroll Saving = £7304.40

SeeGeneral Staff

Generic Provider (People’s Pension / NEST/Insurer)

8% Banded Earnings

Senior Managers

GPP7% Total

Pay

Sales PeopleGeneric Provider

9% Basic Pay

Directors

SEGMENTATION

Admin Duties

Admin dutiesEmployers MUST Employers MUST NOT

Auto enrol and re-enrol/deduct payments

Register/re-register their scheme

Provide information to eligible and non-eligible jobholders Provide information to scheme/provider

Process opt outs/make refunds

Keep records

Discourage membership

Give jobholders the opt-out form

Encourage opt-outs

Use ‘Prohibited recruitment conduct’

Give advice

Sources: Pensions Act 2008, The Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010.

Or else...

Compliance/unpaid contribution noticeStage 1 - Warning

Fixed penalty - £400Stage 2 – ‘Wake up call’

Escalating penalty

Workers Penalty per day1-4 £505-49 £50050-249 £2,500250-499 £5,000500+ £10,000

Stage 3 – Persistent offenders

Sources: Pensions Act 2008, Chapter 2, The Occupational and Personal Pension Schemes(Automatic Enrolment) Regulations 2010.

For professional advisers only

11 Months in and changes already ………..

• Aligning assessment pay reference period with tax periods (RTI?)

• Defining pay reference periods for quality assessment

• Consistency of contribution payment deadlines for all joiners

• Jobholders opting out “before” Auto Enrolment

• Clarification of the opt-out notice, and extension of the joining window

• Test scheme standard for DB schemes, and quality requirements

• Exclusion of certain workers from Auto Enrolment

• “Other possible options” for employers with “good” pension schemes

Middleware

Integrated software to interface with;• Payroll• HR• Pension provider• Employees

Middleware

Purpose to assess in each payment period eligible employees, notify new auto-enrolment joiners by age, salary, new starters, staff that have opted out and need re-enrolling after 3 years etc.

Middleware Platform

Pension

Payroll

Employees

HR

New Joiner Data Contribution Data

Opt Out Indicators

New HiresRe-Joiners

Salary Data

DeductionsSalary Sacrifice

Scheme Decisions

Opt-OutRe-join

ValuationsUpdates

Option 3

• Bespoke Package

• Auto Enrolment Middleware

• Staff Intranet

• Scheme Segmentation

• Full Reporting

• Online Payslips

• Lifestyle Benefits

Option 2

• Bespoke Package

• Auto Enrolment Middleware

• Staff Intranet

• Scheme Segmentation

• Full Reporting

Option 1

• Generic Package

• Insurer Supplied

• Basic AE Middleware

MIDDLEWARE CHOICES

OPTION 1

• Bespoke Offering

• Auto Enrolment Integration and Management

• Full Employee Benefits Package

• Online Payslips

• Staff Intranet

• Lifestyle Benefits

OPTION 2

• Bespoke Offering

• Auto Enrolment Integration and Management

• Staff Intranet

OPTION 3

• Generic Offering

• Insurer Supplied

• Auto Enrolment Integration and Management

• Tied to Insurer and potentially dependent upon segmentation

RANGE OF SOLUTIONS

Communication

Communication!

• Implementers– Payroll/Management/HR/Finance etc

• Employees– Surgeries / One to Ones – Member packs– Reviews / Retirement Advice

• Insurer/schemes

Source: TPR

Official Suggested Timelines

Summary

Step 1 – Design a solution for your

business

Step 2 – Implement the changes effectively

Step 3 – Run the scheme in the most efficient way

2,000 – 2,999 members

1st August 2013

1,250 – 1,999 members

1st September 2013

800 – 1,249 members

1st October 2013

500 – 799 members

1st November 2013

350 – 499 members

1st January 2014

250 – 349 members

1st February 2014

From (inc.) To (inc.)

50 to 249 members 1st April 2014 1st April 2015

Test tranche for less than 30 members 1st June 2015 30th June 2015

30 to 49 members 1st August 2015 1st October 2015

Less than 30 members 1st January 2016 1st April 2017

Staging Dates

@ProaktivePeggy

@ProaktivePeople

John Carter

ProAktive

Updates and Social Media

ProAktive HouseSidings CourtWhite Rose WayDoncasterDN4 5NU01302 341344John Carter 07725 258283johncarter@proaktive.co.uk

Proaktive is a trading name of Atkinson Smith (Financial Services) Ltd. Authorised and Regulated by the FCA

Any Questions?