Blake Lapthorn were pleased to hold its first Thames Valley Pensions Conference with speakers from Blake Lapthorn and Lane Clark & Peacock on 21 March 2012.
1. Thames Valley Pensions Conference
Keeping control in challenging times
Seacourt Tower, West Way, Oxford
21 March 2012
Adrian Lamb
Blake Lapthorn
2. Thames Valley Pensions Conference 2012
Agenda and timetable
9.30 am Introduction
9.45 am What really worries me is ……
10.00 am Will I ever know what our liabilities really are? -
Nicola Walker
10.25 am Discrimination, equalisation and GMPs – a personal
experience!
10.50 am Derisking – what could we do tomorrow? What can
we do today?- Richard Murphy
11.15 am Coffee break
11.35 am Making assets work smarter – Kevin Frisby
12.05 pm Auto enrolment and DC adequacy - Andrew Cheseldine
12.35 pm The future of retirement – Adrian Lamb
12.45 pm Questions and open forum
1.00 pm Lunch!
3. Thames Valley Pensions Conference 2012
Health & safety and housekeeping!
Packs and soft copy of slides
Feedback forms
Ask questions throughout
Participate
Challenge
Enjoy
4. Thames Valley Pensions Conference 2012
YOU DON’T HAVE TO
BE MAD TO BE A
TRUSTEE (OR
INVOLVED WITH
PENSIONS IN ANY WAY)
- BUT IT HELPS
5. Thames Valley Pensions Conference 2012
The Perfect Storm - revisited
Volatile asset values
Increasing liabilities
Covenant and finance strains
Are we out of the
recessionary woods yet?
6. Alphabet soup
SPA &DRA
TUPE & TEPP
NEST
DB and DC
PIGS, PIIGS and PIIIGS
BRIC
QE
QE2
QE3/4/5???
MEGO?
7. C =
Complacency
Cancer survival rates
Credit easing
Cruises?
Current account trade balances
Cardboard
Cells (Hayflick limit)
CIVETS
Contributing more and for longer
8.
9.
10. Questions
Is there such a thing as a risk free investment?
Can I ever know what our liabilities really are?
Data, what data?
Can I do anything about this (other than pray)?
Is there such a thing as an equity risk premium now
… or is it just an equity risk?
Can I get smarter with my/our investment strategy?
11. More questions
What does it take to make DC adequate?
What is adequate?
Is it ever likely to be affordable?
Is auto enrolment just a precursor to more tax?
Can it work?
What do we need to do?
How can we cope with more older workers?
Who can I blame?
Can I sue anybody?
19. Drafting problems
' Then you should say what you mean,' the March Hare went on.
' I do,' Alice hastily replied; ' at least--at least I mean what I say--that's
the same thing, you know.‘
21. Data
'It is wrong from beginning to end,' said the Caterpillar
22. Defined benefit or defined contribution
‘Let me see: four times five is twelve, and four times six is thirteen, and four
times seven is…oh dear! I shall never get to twenty at that rate!’
24. How to be proactive
‘Oh my ears and whiskers, how late it’s getting’
25. ‘Now, I give you fair warning, either you or your
head must be off!’
26. Thames Valley Pensions Conference
21 March 2012
Discrimination/equalisation and GMPs
- What can I/should I be doing about them?
adrian.lamb@bllaw.co.uk
28. Age Discrimination and scrapping the
default retirement age – flexible retirement
Narrow sense
– Essentially, more flexibility over late
retirement options
Drawing benefits at 65 whilst
continuing to work
Drawing benefits at 65 whilst
continuing to accrue
Not drawing benefits at 65 but
continuing to accrue
Wide sense
– Drawing benefits in different stages at
any permitted age whilst continuing to
accrue
Combination of age discrimination and
scrapping DRA – but you still have
objective justification!
29. What are employers doing at the moment?
Money purchase schemes
– Continued employer contributions beyond age 65
Defined benefit schemes – choice at 65 of:
– Continued accrual
– Immediate pension
– Late retirement uplift
Can you offer a money purchase alternative at age 65?
30. Must you provide flexible retirement?
Narrow
– Probably – no exemption in age discrimination legislation for
scheme provision that prevents accrual beyond 65
– Indirect age discrimination risk if rules impose a leaving
service requirement before pension can come into payment
– Objective justification likely to be difficult
No requirement outside of age discrimination legislation. Could
age discrimination be an issue?
Wide
– Original DTI Guidance suggested an indirect discrimination
risk:
31. Sex equality – the legal background
European law – equal pay for men and women
Barber case – pensions are pay
So equal treatment from 17 May 1990
Several cases since then on various aspects
Requirement for equality on pensions enshrined in pensions law
at s.62 Pensions Act 1995 (not in equality Act 2010
32. What does equal treatment for men and women
mean in a pensions context?
Same benefits for same period of pensionable service
– Defined benefit = same accrual basis
– Defined contributions = same contribution rates
Same rights in relation to those benefits, e.g. if right to take form ago
60 applies it applies to men and women in same category
In DB scheme this should mean pension for a man and woman on
equal pay should be the same at the start (and should be the same
throughout?)
For DC schemes at the moment no need to take account of different
annuity rates which produce unequal benefits for men and women!!!
33. Equal treatment – some of the recent problems
Changes not effective, ie did not follow alteration power
correctly
– Could mean the Barber gap is still open!!
Not all terms and conditions applied equally, eg for stayers and
leavers
Confusion over what rights are affected
Expensive mistakes
Time limits!
34. GMP Equalisation – the issue
(important even if it isn’t that interesting!)
In schemes where employees contracted out on a GMP basis,
there are two elements to the pension – the GMP (replacement
for accrual under SERPS) and the excess over GMP
Different rates of increase apply to the GMP and non-GMP
elements
Different rates of revaluation apply to the GMP and non-GMP
elements of a deferred pension for an early leaver
Revaluation of GMP applies up to SPA which is different for
men and women (and possibly different from the Scheme NRD)
Because GMP is a replacement for SERPS it has to be paid at
the same time as SERPS would be paid – 60 for a woman and
65 for a man
So unequal payment dates, pensions and increases!!!
35. The Williamson case – (1)
a landmark overlooked?
Williamson (an actuary!) complained to Ombudsman his
benefits were lower than an equivalent female employee
because unable to receive that part of his pension related to
SERPS his GMP) until 65 but woman could take form age
Compliant upheld but no directions given on how to best
equalise
GMP equalisation is a (deliberate) misnomer – any equalisation
is to other benefits to compensate for unequal GMPs
Trustees and employer challenged on two grounds – jurisdiction
and correctness.
Because Ombudsman lost on jurisdiction (technical) the
correctness of his decision was not ruled on
But….
36. The Williamson case (2)
Ombudsman terminology probably wrong – referred to GMP
equalisation rather than equalised benefits to compensate for
unequal GMPs
Judge confirmed that GMPs in a pension scheme should be
regarded as calculation factors rather than pensions in
themselves
Judge confirmed that members should in principle be allowed to
complain about matters which brought about potential (not just
actual) discrimination
Judge also did not accept the broader arguments that s.62 did
not require equalisation
Judge all but supported the view that some action needed to be
taken
37. The Pension Industry’s view
Too difficult!
Ambivalence
Thankless task
Failure to get a consensus
Hope it goes away
38. The Government’s position
[Schemes should] reflect the European law position on equal
treatment of men and women as it applies in the field of
occupational pensions, in so far as any differences result from
the GMP provisions in the Pension Schemes Act 1993.
Successive Governments have maintained the position that
schemes are under an obligation to equalise overall scheme
benefits accruing from 17 May 1990 including, in respect of
accruals from 17 May 1990 to 5 April 1997, any inequality
resulting from the GMP rules, where an opposite sex
comparator existed in the scheme.
as inequality resulting from the GMP rules results from state
legislation, the requirement to remove any unfavourable
treatment resulting from those rules is not subject to the
requirement that an opposite sex comparator exists.
39. The Government’s position
The Government understands the current situation is that
contracted-out schemes which hold GMP liabilities are already
under an obligation to:
– equalise pensions for the effect of the GMP rules for any
accruals from 17 May 1990 to 5 April 1997 (inclusive),
apart from where the limited exceptions in the Equality Act
2010 (Sex Equality Rule) (Exceptions) Regulations 2010
apply. This flows from Barber and current domestic
legislation; and
– assume a comparator exists for the purposes of this
exercise. This flows from Allonby itself which imposes EU
law obligations directly on schemes.
40. The Government’s position
It is a requirement
Have taken advice
Are only consulting on technical changes to bring UK law into
line with European law
PPF have also taken advice (but different considerations there
as they pay “compensation”)
Only one conclusion can be drawn from this – the advice has
made clear it has to be done
One possible methodology published with consultation
41. The PPF …. and insurance companies
Compensation, not pensions so law applies directly
PPF basis could be described as the “best of both worlds”
“The member’s entitlement is the higher of the amount the member
would get under the scheme rules in their own sex and the
amount their opposite sex notional comparator would be paid.
The comparison is undertaken each time the amount of pension in
payment is calculated (generally annually) and the scheme pays
the higher amount.
Some insurers already insisting on it …. and more will now?
So affects schemes when buying out, buying in, and winding up
Could affect liability reduction exercises, enhanced transfer
values, etc.
42. Administration and other issues
The basis – best of both worlds for members, the
worst for the scheme?
The administration!!!
The communication!!!!
Member confusion
Past cases
Materiality
Cost
Complexity
43. Conclusions
Has to be done
Directly applies to pension schemes so Trustees have to ensure
compliance
PPF is the default basis but other bases may be justifiable –
Rolls Royce, Mini, BMW (other car makes are available)
Understand the costs – benefits, administration and
communication
Administrator competence – this won’t be easy
Governance/audit
“Endgame” focus requires action
44. Blake Lapthorn Oxford Pensions Conference
Richard Murphy – 21 March 2012
What to do today and
tomorrow.
44
45. Agenda
UK plc
Why are there DB pensions?
DB liabilities in perspective
The challenges for employers and trustees
Steps today or tomorrow
Certainty from uncertainty
45
46. Why do employers have defined benefit
pension schemes?
Help Smoothing of
outcome Flexibility of
employees Cost effective Rewards
between timing on
plan for saving members and loyalty
contributions
retirement over time
Simple for Efficient
Rewards Flexibility Employees individuals targeting of
high-flyers for HR like them to death
understand benefits
46
47. Pension risks and challenges
Benefit Interest Asset
Legislation Inflation
administration rates performance
Corporate
Contingent Turnover of Solvency II
Longevity bond
benefits employees for pensions
spreads
Salary Regulatory Trapped Member
Communication
growth bodies surplus options
47
48. The big picture
£80bn
Active accruing - DB
DC
Active accrued - DB
£60bn Deferreds
Pensioners
£40bn
£20bn
£0bn
2012 2022 2032 2042 2052 2062 2072 2082 2092
Year
48
49. So where are we now?
£4000bn
£3500bn
£3000bn
£2500bn
£2000bn
£1500bn
£1000bn
£500bn
£0bn
Total benefit Assets Technical Insurance
payments provisions premium
49
50. How does it all fit together?
A long-term plan for UK plc Pension Scheme
Progressive buy-ins Insurance premium and
technical provisions
converge
Insurance
premium
? Technical
RPI to
CPI ? “Liability provisions
management”
Assets
Non-cash funding solutions
Auto enrolment demands
on employer cash flow
2012 2030 2060
50
51. Equities underperform liabilities by 21%
Double whammy over the summer
Equities (GBP, TR) vs Index-linked Gilts
130
120
110
100
90
80
70
31/12/2010 31/03/2011 30/06/2011 30/09/2011 31/12/2011
Global Equities >5Yr ILG Relative
Source: Bloomberg
51
51
53. Government announcements
CPI might help a bit…
Annual increase in Retail and Consumer Prices
Statutory minimum Indices (% pa)
indexation switching
from RPI to CPI Annual RPI inflation Annual CPI inflation
– Average long run
difference 0.7% pa
Increase (% pa)
– Might be increasing
to 1.0% pa or more
Source: ONS data
53
54. Immediate change
Impact on UK Plc Pension Scheme
Insurers
Projected benefit payments only just
£4000bn starting to
Pensioners Deferreds Active accrued
reduce
£3500bn
Reduction premiums
£80bn
£3000bn of £360bn for CPI
£60bn £2500bn
Reduction
£2000bn
£40bn of £73bn
£1500bn
£20bn £1000bn
£500bn
£0bn
£0bn
2012 2032 2052 2072 2092 Total benefit Assets Technical Insurance
payments provisions premium
Year
54
55. Probably my most important slide of
the session
The importance of good data
Risk Data issues
Paying the wrong Benefits uncertain
benefits
Lost records
Good
Funding uncertainty
data Spouses’ benefits only
Premium loading on required on the paper record
insurance
Unrecorded benefits
Impact
Cannot proceed with managing risk
Over pay to reduce the risk
Unexpected liabilities emerge
55
56. Pensioner buy-outs and buy-ins
Overview
Equities 37% 57% Equities Residual
Liabilities Liabilities
Bonds
Bonds
Insurance Pensioner
Policy Liabilities
Before After
For buy-ins trustee (and company) gain exposure to insurer’s covenant
Larger schemes have additional flexibility when structuring transactions
56
58. Quote
“It is currently the case that for
pensioners insurance may be
cheaper than holding gilts.”
Pension Insurance Corporation – 8 November 2011
58
59. “Liability management”
Buzzwords for…
Transfer value Member option to convert to a level
exercise pension
8000
Pension per year (£)
Settlement
gain
6000 Highervalue?
Fair pension
Enhancement now
to transfer 4000
Pension value
Fixed for
liability
2000 lifetime
Standard
Transfer 0
Value 65 70 75 80 85
Age
59
60. Plugging the deficit
Asset backed partnerships and the rest …
Parent company
Sponsoring Pension guarantees
employer scheme
G
R en Negative pledges
rtn d
am
pa ent er
Pa mite
er
al
re
ym al P
st
Li
en ar
e
ts tn Triggers for additional
m
er
co contributions
In
Scottish Limited
Partnership Charges over assets
Cross-company
Property Contracts Whisky Brands
guarantees
60
61. Scope
This generic presentation should not be relied upon for detailed advice or taken as an
authoritative statement of the law.
If you would like any assistance or further information, please contact the partner who
normally advises you.
While this document does not represent our advice, nevertheless it should not be passed
to any third party without our formal written agreement.
LCP is part of the Alexander Forbes Group, a leading independent provider of financial and risk services. Lane Clark & Peacock LLP is a limited liability partnership registered in England
and Wales with registered number OC301436. LCP is a registered trademark in the UK (Regd. TM No 2315442) and in the EU (Regd. TM No 002935583). All partners are members of
Lane Clark & Peacock LLP. A list of members’ names is available for inspection at 30 Old Burlington Street, London, W1S 3NN, the firm’s principal place of business and registered office.
The firm is regulated by the Institute and Faculty of Actuaries in respect of a range of investment business activities. Locations in London, Winchester, Belgium, Switzerland, the
Netherlands, Ireland and the UAE.
61
62. Blake Lapthorn Oxford Pensions Conference
Kevin Frisby – 21 March 2012
Making your assets work
smarter.
62
63. Agenda
Fiduciary Management for DB Schemes
DC Scheme Investing
Life-styling
Default options
Latest investment ideas
Emerging market multi asset funds (EMMAFs)
Diversified growth funds (DGFs)
Switching triggers
63
64. Fiduciary management for DB Schemes
What is Implemented Consulting / Fiduciary Management?
Rationale
Market providers
Pros and cons
65. Running a pension scheme
How hard can it be?
£1,000m
(£0m)
(£1,000m)
Surplus (Deficit)
(£2,000m)
(£3,000m)
(£4,000m)
(£5,000m)
11
11
11
10
11
1
11
11
1
11
11
r1
l1
n
b
ar
n
ec
ay
p
g
ct
Ju
Ap
Ja
Fe
Ju
Se
Au
O
M
D
M
31
30
31
30
31
28
31
31
30
31
31
Source: LCP Visualise
65
66. What is fiduciary management?
Asset management
With liability benchmark
Different things to different people!
Advisory Fiduciary
Fund manager
Fund manager Tactical asset Strategic asset
selection allocation
rotation allocation
Investment objectives cannot be delegated
66
67. Market providers
Investment consultants Asset managers
No two offerings are the same
67
68. Pros and cons of Fiduciary Management
Faster decision-making Responsibility remains with Trustees
Reduced governance time Conflicts of interest
Greater professional involvement Limited track records
may lead to superior returns Concentration of manager risk
Access to “best in class” Potentially higher fees
managers Complex and expensive to unwind
Access to alternative asset Still requires monitoring
classes for smaller Schemes
Many of the perceived benefits of fiduciary management can be achieved
through the traditional advisory model, such as:
- Triggers for de-risking and hedging
- Diversified growth funds
- Adding more expertise to the trustee group
- Impromptu ISC meetings
68
70. Investment - what do DC members
want?
Focus on outcomes, not inputs
– Eventual pension benefit is the key factor
– Assets used to produce this are merely the means to an end
Most members are risk averse
– Big losses are more significant than big gains
Most members do not feel comfortable taking investment decisions
– Design of the default strategy is therefore crucial
– Most appropriate default strategy is a lifestyle option
70
77. Trigger based switching strategies
Automated strategic shifts to capture relative outperformance
90%
75%
Relative performance differential
60%
45%
30%
15%
0%
First switch implemented Relative performance
-15%
on 4 Jan 2011
Triggers
-30%
2009 2010 2011 2012 2013 2014 2015
Year
Locks in outperformance of equities relative to
scheme liabilities when affordable to do so
Locks in outperformance of equities relative to scheme liabilities
77
78. Conclusions
Pros and cons to fiduciary management arrangements
– May be suitable for some schemes
– Most of the benefits can be achieved under the traditional model
Lifestyle and default options remain key for DC schemes
– Diversification of growth and bond elements
– Consider longer switching period to dampen volatility of returns
EMMAFs can provide a risk conscious way to access emerging markets
DGFs continue to provide a lower risk alternative to equities
Automated trigger based switching strategies enable trustees to lock in
outperformance relative to scheme’s liabilities
78
79. Scope
This generic presentation should not be relied upon for detailed advice or taken as an
authoritative statement of the law.
If you would like any assistance or further information, please contact the partner who
normally advises you.
While this document does not represent our advice, nevertheless it should not be passed
to any third party without our formal written agreement.
LCP is part of the Alexander Forbes Group, a leading independent provider of financial and risk services. Lane Clark & Peacock LLP is a limited liability partnership registered in England
and Wales with registered number OC301436. LCP is a registered trademark in the UK (Regd. TM No 2315442) and in the EU (Regd. TM No 002935583). All partners are members of
Lane Clark & Peacock LLP. A list of members’ names is available for inspection at 30 Old Burlington Street, London, W1S 3NN, the firm’s principal place of business and registered office.
The firm is regulated by the Institute and Faculty of Actuaries in respect of a range of investment business activities. Locations in London, Winchester, Belgium, Switzerland, the
Netherlands, Ireland and the UAE.
79
80. Blake Lapthorn Oxford Pensions Conference
Andy Cheseldine – 21 March 2012
Auto-enrolment and DC
adequacy.
80
81. Agenda
Why auto-enrolment is necessary – DC adequacy
What is auto-enrolment?
Implementation issues for you
Identifying different types of worker
Identifying your staging date
Managing costs
Communication and administration
Case study – putting these issues into context
What should you be doing now?
81
83. The benefit strain
Millions of people aged 60 and over receiving
income related benefits
Source: ONS, Pension Trends, Chapter 5, 2011
84. Private pensions to the rescue?
Millions of active members of occupational
pension schemes by sector
Percentage of 16 to 64 year olds
contributing to private pensions
Source: ONS, Pension Trends, Chapter 7, 2011
85. The answer is auto-enrolment?
How many will opt-out?
What will 8% of Qualifying Earnings buy at retirement?
How many 22 year olds will have a 46 year contribution history at State
Retirement Age?
What will the 2017 review bring?
– Compulsion?
– Increase in employer contributions?
– Increase in member contributions?
– Widening of Qualifying Earnings definition?
85
86. “What do I get for my money”
Median earnings in the UK for full time workers are £24,024 pa (mean of
£28,288) as at Q4 2011 (Source ONS)
8% of qualifying earnings (£24,024-£5,564) for this typical worker are £1,477 pa
Ignoring pay growth (just to keep it simple) but adding in 3.5% real investment
growth net of charges (broadly, SMPI assumptions)
Gives a fund after 40 years of saving of £124,864
Which, today, would buy a 65 year old male a joint life, inflation linked annuity
of….
£ 307 gross per month (just over 15% of salary)
But rich people live longer
A 65 year old male retiring today, with a pot of £1,500,000 - the Lifetime
Allowance (at least this morning), could buy a joint life, inflation linked annuity
of….
£ 2,831 gross per month (£33,972 per year)
Annuity rate sources: Money Advice Centre, Comparative Tables 86
88. In a nutshell…
From October 2012 onwards UK employers will be required:
– to automatically enrol eligible employees (“eligible jobholders”) into a
pension scheme of sufficient quality (an “automatic enrolment scheme”)
– to automatically re-enrol them every three years if they opt out
– to contribute to that scheme for auto-enrolled employees
But it is not “one size fits all”
– different quality requirements for DB, DC and Hybrid schemes
– clients with dissimilar workforce demographics will probably want
fundamentally different solutions
– don’t forget your existing scheme members; and
– contribution costs will, in many cases, be lower than administration costs in
the early years
88
90. Identifying different types of worker (2)
Age
75
OPT IN
Employer contribution
SPA
OPT IN OPT IN AUTO-
ENROL
No employer Employer
contribution contribution Eligible
jobholder
(“Entitled
workers”) Qualifying Earnings (QE)
22
OPT IN
Employer contribution
16 Earnings
£5,564 £8,105 £39,853
Qualifying Earnings Upper
Earnings Trigger Limit
Threshold
90
92. Staging date flexibility
Company A Company B
SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY
PAYE CODE 1 PAYE CODE 2 PAYE CODE 1 PAYE CODE 2
92
93. Quality Requirements - DC
DC and personal pensions – the core requirement
Employer must contribute at least
3% of QE
Total contributions must be at
least 8% of QE
These rates will be phased in
between 2012 and 2017
Employer Employee
Contribution Contribution
3% 5%
93
94. Staging and DC phasing
Staging date
dependent on no. of
employees
October October October October October October
2012 2013 2014 2015 2016 2017
120,000 400
employees employees
Required DC ER 1% ER 2% ER 3%
contribution rate Total Total Total
(% of QE) 2% 5% 8%
October October October October October October October
2012 2013 2014 2015 2016 2017 2018
94
95. Quality requirements - DC
DC and personal pensions – alternatives to allow certification
7% of pensionable pay (inc minimum of 3% from employer) - subject to 100% of
earnings being pensionable
8% of pensionable pay (inc minimum of 3% from employer) – pensionable pay
can exclude variable earnings subject to pensionable pay constituting at least
85% of total pay bill
9% of “basic pay” (inc minimum of 4% from employer) – pensionable pay can
exclude variable earnings
Notes:
Phasing applies in all three approaches
“Basic pay” can include other elements of pay that do not vary
(eg London Allowance) so potentially not just basic salary
95
96. Managing costs
Front Sheet Outputs Employer contributions
Minimum Contributions
£300,000 based on Qualifying
Earnings
£250,000 9% Certification
£200,000 8% Certification
7% Certification
£150,000
Existing scheme design
£100,000 Alternative scheme design
£50,000 Which certification route
will be most suitable for
£0 you?
2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Note: the above is generic output from LCP’s Auto Enrolment Modeller, the output from which is employer and scheme specific.
96
96
98. Managing costs - options
Trust-based
Phasing-in of DC
scheme (short
contributions
service refunds)
Salary sacrifice
Changes to, or
Waiting period for “levelling down”,
membership of existing
pension benefits
98
99. Communication and disclosure
George Bernard Shaw
At least seven different versions of
Playwright, critic, political
communication required at staging date activist
Early engagement 1856 – 1950
Consultation
Communications review The problem with
communication is the
illusion that it has happened.
99
100. Administration processes and systems
review
Eligible jobholder?
No
Opt in notice
- Issued by employer
Regular review
- One month
- Returned to employer
Ineligible due to Jobholder information
- Age - From employer to scheme
- Salary
Employer required to pay contributions
100
101. Administration processes and systems
review
Eligible jobholder?
No
Joining notice
- Issued by employer
Regular review
- One month
- Returned to employer
Ineligible due to Below Qualifying
Jobholder information
Earnings Threshold
- Age - From employer to a scheme
- Salary
Employer NOT required to pay contributions
101
102. Administration processes and systems
review
Eligible jobholder?
No
Opt in notice
- Issued by employer
Regular review
- One month
Between Qualifying - Returned to employer
Ineligible due to Earnings Threshold
Jobholder information
and Eligibility
- Age Trigger - From employer to scheme
- Salary
Employer required to pay contributions
102
103. Administration processes and systems
review
Eligible jobholder?
Yes
Enrolment information
Auto-enrol
- Issued by employer
- One month
- Bespoke
- Details of opt-out
Jobholder information
- From employer to scheme
103
104. Administration processes and systems
review
Eligible jobholder?
Yes
Opt out form
- Requested by jobholder
Auto-enrol
- Issued by scheme
- One month
- Prescribed format Opt-out?
- Returned to employer
Yes
Employer duty
- Notify scheme of opt out
104
105. Administration processes and systems
review
Eligible jobholder?
Yes
Scheme actions Auto-enrol
- Membership unscrambled
- Contributions returned to
employer by “refund date” Opt-out?
Employer actions
- Contributions returned to Yes
jobholder
105
107. Case study
A pub/restaurant chain
Issue Solution
Multiple sites and employers One staging date for all employers
– Multiple staging date Simplified communications
Frequent buying and selling of Analysed likely impact of a 2%
premises increase in employer contributions on
– TUPE requirements sale (and purchase) prices
High staff turnover – 30% Considered trust based for short
service refund, but………….
High number of non-UK nationals NEST a likely provider for at least
some staff
Keep GPP for managers / head
office staff
107
109. NEST
Occupational DC scheme set up under trust
Designed to help employers meet DC quality requirements (employer
and employees can pay higher contributions)
Maximum total contribution of £4,200 pa per member
A 1.8% contribution charge plus 0.3% annual management charge
Six funds available, with Target Date funds as default
Active members already contributing
Limited employer support
109
112. What should you be doing now?
Understand what
you need to do Understand when
you need to do it
Can you / should
you use existing How much will
Plans? contributions cost?
Who will / can do
the admin and record How much will
keeping? administration cost?
Who will / can
do the project
management?
112
115. Staging
Based on number of PAYE employees as at 1 April 2012
Employers due to auto-enrol in 2012 can bring forward their staging date to no
earlier than 1 July 2012
Others can potentially bring forward their staging date to no earlier than
1 October 2012
Example staging dates:
Number of employees Staging date
120,000 or more 1 October 2012
50,000 – 119,999 1 November 2012
… …
800 – 1,249 1 October 2013
500 – 799 1 November 2013
… …
<50 1 August 2014 – 1 February 2016
115
116. TUPE implications
The minimum contribution rate is 3% from employers and 5% from employees
If you use a trust based arrangement to meet your obligations and then transfer
employment under TUPE
– the employees will typically continue to contribute 5% (through inertia)
– and the new employer will need to increase their contributions to 5%
– because the TUPE minimum (for trust based schemes) is to match employee
contributions up to 6%
That increase in employer costs will be reflected in the sale price of the
business
Alternatively, if you use a contract based arrangement (eg GPP)
– the employees will typically continue to contribute 5% (through inertia)
– and the new employer will can continue contributing 3%
– because the TUPE minimum (for contract based schemes) is to match the
existing level of contributions
116
117. Non-UK nationals
All eligible jobholders must be auto-enrolled
But of the 29 million people working in the UK, 2.5 million are non-UK nationals
(source: ONS)
Of those 2.5 million, about 35,000 are secondees from other EU countries
(source: DWP). Auto-enrolling these secondees will create a cross-border
scheme
Among the rest of the 2.5 million, almost all will be tax resident in the UK (by
definition). Roughly half (LCP estimate) are likely to be “not ordinarily tax
resident in the UK” and, therefore, most commercial providers (especially GPPs)
will not accept them as members
How can you meet your auto-enrolment duties for non-UK nationals?
117
118. Staging dates
Based on number of PAYE employees as at 1 April 2012
Number of PAYE employees 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 (subject to consultation)
Employers with fewer than 50 employees 1 April 2017 to 1 April 2017 (subject to consultation)
New employers to September 2017 1April 2017 to 1 February 2018 (subject to consultation)
New employers from October 2017 Immediate duty (subject to consultation)
118
119. Regulator powers
Regulator will have the power to issue
– a compliance notice
– a third party compliance notice
– an unpaid contributions notice
– a fixed penalty notice (up to £50,000)
– an escalating penalty notice (up to £10,000 per day)
Criminal sanctions for failure to comply with specified duties (up to two years in
jail)
Legislation also includes safeguards, for example, prohibiting employers from
inducing employees to opt-out
119
120. Scope
This generic presentation should not be relied upon for detailed advice or taken
as an authoritative statement of the law.
If you would like any assistance or further information, please contact the partner
who normally advises you.
While this document does not represent our advice, nevertheless it should not
be passed to any third party without our formal written agreement.
LCP is part of the Alexander Forbes Group, a leading independent provider of financial and risk services. Lane Clark & Peacock LLP is a limited liability partnership registered in England
and Wales with registered number OC301436. LCP is a registered trademark in the UK (Regd. TM No 2315442) and in the EU (Regd. TM No 002935583). All partners are members of
Lane Clark & Peacock LLP. A list of members’ names is available for inspection at 30 Old Burlington Street, London, W1S 3NN, the firm’s principal place of business and registered office.
The firm is regulated by the Institute and Faculty of Actuaries in respect of a range of investment business activities. Locations in London, Winchester, Belgium, Switzerland, the
Netherlands, Ireland and the UAE.
120
121. The future of retirement
Or ……
A future without retirement?
Is there a future for retirement?
Challenges for employers, trustees, and individuals
Thames Valley Pensions
Conference 2012
133. In the budget today?
Remove/limit tax free cash – anomalous but ….?
Remove higher rate tax relief – Lib Dems like but ….?
Reduce annual allowance again ….?
134. (private sector) Defined benefit pension schemes
Funded pension schemes?
Retirement?
Member nominated trustees?
Traditional (simplistic) investment approaches?
The euro (at least as we know it now)?
Thames Valley Pensions
Conference 2012
135. The future
– for individuals?
Live for longer = work for longer
Medical advances
More than one career/job + mid life gap years?
No cliff edge retirement
Integrated savings/debt repayments
NEST/auto enrolment
Auto escalation
compulsory retirement savings?
Tax incentives or just higher taxes?
Affordability
WE ARE LIVING LONGER, HEALTHIER LIVES
Thames Valley Pensions
Conference 2012
136. The future
– for employers (1)?
Ageing workforce for UK plc ….. but what is your position?
Skills v productivity
Flexible recruitment – target different age groups?
Different retention policies for different ages?
Fewer people able to afford outright retirement
Flexible retirement Flexible reward packages
Thames Valley Pensions
Conference 2012
137. The future
– for employers (2)?
Changing role of the state?
Segmented workforce – one size fits all consigned to history
Planning and action needed
Employer facilitates access (and pays/funds)?
More unfunded liabilities – explicit or implicit?
Review your pay and benefits package and your practices, procedures
and performance criteria
Effective HR becomes more important
More people working is actually better for the
economy
Thames Valley Pensions
Conference 2012
138. A =
Asteroids
Attrition
Autoenrolment
Accuracy
Assets
Ageing workforce
Affordability
Action (not activity)
Thames Valley Pensions
Conference 2012
139. To Do List
Liabilities and data
Assets – can you make them work better?
Know when auto enrolment applies to you and how it will affect
you
Review your policies for older workers!
Be active rather than reactive
All of us need to think “outside the box”?
Thames Valley Pensions
Conference 2012