The Auto Enrolment Advisor: Overview of your Auto Enrolement
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We will map out a six step solution to help employers comply with auto-enrollment requirements: 1) Conduct an initial assessment of staging date, employee statuses, and pensionable pay definitions. 2) Design a qualifying auto-enrollment scheme and select a provider. 3) Consult payroll on administration processes. 4) Develop a member communications strategy. 5) Implement the scheme, including software testing and certification. 6) Conduct annual compliance audits. The goal is to provide employers with guidance to enroll eligible employees, communicate effectively, and avoid penalties from the Pensions Regulator.
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The Auto Enrolment Advisor: Overview of your Auto Enrolement
- 1. Auto Enrolment : What we will do
- 2. The Auto Enrolment Advisor Agenda • Why it is happening? • Technical Detail • What will we do? • Questions
- 3. The Auto Enrolment Advisor • Do you know the Average Pension Fund Size in the UK?
- 4. The Auto Enrolment Advisor • 20 Years ago in Australia • Average pension fund £24,000 • 20 Years later • Average pension fund £300,000
- 5. The Auto Enrolment Advisor Timetable • Auto enrolment started from 1 October 2012 • Start date (known as the staging date) for individual employers depend on size and PAYE reference
- 6. The Auto Enrolment Advisor
- 7. The Auto Enrolment Advisor Who is in?
- 8. The Auto Enrolment Advisor AGE Wage <22 22-SPA SPA< >£10,000 NON ELIGIBLE ELIGIBLE EE & ER Contributions Must be enrolled NON ELIGIBLE £5,824 - £10,000 NON ELIGIBLE <£5,824 ENTITLED EE & ER Contributions Can ‘opt in’ EE & ER Contributions Can ‘opt in’ EE & ER Contributions Can ‘opt in’ EE Contributions only May ‘opt in’
- 9. The Auto Enrolment Advisor In Plain English • Some are in! • Some can come in! • Some might want to come in! • Important point is each has to receive a letter.
- 10. The Auto Enrolment Advisor Contributions • Based on pensionable earnings, where employer pension scheme meets minimum levels Note Pensionable earnings means the higher of employer’s definition of pension earnings pay. Basic pay excludes variable elements such commission, bonuses and overtime. • 9% total with at least 4% from employer based on pensionable earnings, or • 8% total with at least 3% employer, providing pensionable earnings are at least 85% of total earnings, or • 7% total with at least 3% employer, providing pensionable earnings are 100% of total earnings • The employer has to certify every 18 months that minimum contributions are met on the alternative basis.
- 11. Example 1 Mr Jones is employed by Company 1 and receives a basic salary of £15,000 p/a with no other sources of income (bonus/commission). Which contribution basis would be most beneficial for the employer? Qualifying Earnings: £15,000 - £5,824 = £9,176 x 3% = £275.28 Basic Pay: £15,000 x 4% = £600 £275 £600 £0 £100 £200 £300 £400 £500 £600 £700 Banded Earnings Basic Salary
- 12. Example 2 Mrs Evans is employed by Company 2 and receives a basic salary of £15,000 p/a plus an annual bonus of £10,000. Which contribution basis would be most beneficial for the employer? Qualifying Earnings: £25,000 - £5,824 = £19,176 x 3% = £575.28 Basic Pay: £15,000 x 4% = £600 £575 £600 £100 £200 £300 £400 £500 £600 £700 Banded Earnings Basic Salary
- 13. Example 3 Mr Adams is employed by Company 3 and receives a basic salary of £10,000 and commission of £45,000. What contribution basis would be most beneficial for the employer? Qualifying Earnings: £42,385 - £5,824 = £36,561 x 3% = £1,096.83 Basic Pay: £10,000 x 4% = £400 £1,097 £400 £100 £300 £500 £700 £900 £1,100 £1,300 Banded Earnings Basic Salary
- 14. The Auto Enrolment Advisor Qualifying Workplace Pension Scheme (QWPS) • All employers must automatically enrol eligible employees into a QWPS • Note there will be no exemptions! • Includes business owners employing their spouse! • Where no QWPS already exists, the employer has to designate an alternative for auto enrolment.
- 15. The Auto Enrolment Advisor Penalties The Pension Regulator will have the ability to impose penalty notices if an employer does not comply with their new duties • Fixed penalty of £400 where an employer fails to respond to a warning notice from The Pension Regulator • An escalating penalty of £50 to £10,000 a day (depending on the size of the employer). For example if the employer fails to pay contributions on time • Fixed penalty of £1,000 to £5,000 for prohibited recruitment conduct, for example where an employer screens job applicants for their intention to join the pension scheme.
- 16. The Auto Enrolment Advisor Auto Enrolled Scheme • Some existing schemes may already qualify. • Opt outs have to be re enrolled again three years later. • 3 month postponement period. • If an employee volunteers to rejoin, the employer must allow this at least once a year.
- 17. The Auto Enrolment Advisor How would we map the solution? 1. Initial Assessment • Confirm Staging date • Establish relative points of contact for payroll, pension providers and GCR • Identify employee status • Confirm definition of Pensionable Pay – Banded Earnings or Tiered Options Options • Establish the minimum requirements to comply with Auto Enrolment legislation legislation • Demonstrate how the various options will impact future cash flow • Provide report detailing the various options
- 18. The Auto Enrolment Advisor How would we map the solution? 2. Scheme Design for Auto Enrolment • Discuss options around Auto Enrolment providers • Assess existing pension scheme (if applicable) • Obtain terms from Providers • Select Provider and make recommendation based on core values of of the company
- 19. The Auto Enrolment Advisor How would we map the solution? 3. Administration Process • Consult with Payroll provider and assess current software • Consider existing contractual arrangements (interaction of existing existing benefits) • Consider Payroll process and identify and recommend their responsibilities
- 20. The Auto Enrolment Advisor How would we map the solution? 4. Member Communications • Agree a communications strategy • Evaluate what letters have to be sent and to whom • Distribute the correct letters to the appropriate employees in a timely timely fashion
- 21. The Auto Enrolment Advisor How would we map the solution? 5. Implementation • Test Software • Scheme Certification • Register Qualifying Schemes • Complete Declaration of Compliance
- 22. The Auto Enrolment Advisor How would we map the solution? 6. Annual Compliance Audit • Review previous year to assess that all requirements from TPR are are being fulfilled • Assess alterations that were made to the scheme to ensure compliance • Answer any queries that Payroll have in regards to the scheme
- 23. The Auto Enrolment Advisor Summary • It all starts with information! • Staging Date, Segment Employees & Know costs • Communication is key! • Advice (Tread with care) • TPR are on the lookout for discouraging employees to join
- 24. Auto Enrolment : What we will do
Editor's Notes
- Currently, the average British worker retires with a pension pot worth around £40,000. - See more at: http://www.nutmeg.com/nutmegonomics/are-you-saving-enough-for-your-retirement/#sthash.yrNolpoN.dpuf In Northern Ireland, savers were found to be building funds sufficient to last just three and a half years, while Scottish people could expect five years, Welsh savers just over four years, and Londoners five and a half years. http://home.bt.com/lifestyle/money/investing-pensions/average-pension-will-last-five-years-11363938511168 However, when asked what they thought an adequate and comfortable annual income in retirement was, ‘more than £15,000, up to £20,000’ was chosen by 26% of those surveyed. A pension pot of £350,000 would be required to reach this figure. References: http://www.bestinvest.co.uk/press-releases/latest-press-releases/2015/april/great-expectations-%C2%A3330k-average-gulf-in-pension-pots-revealed
- Accounting for inflation this figure is equivalent to £36,125 Australian scheme introduced in 1997
- The timetable for access has been determined and details can be found on The Pension Regulator website, details of which are later in this presentation. The number of employees will be determined by the number on your PAYE payroll system on 1 April 2012 and any increases or decreases after this date will not alter your staging date As an example the original staging dates were as detailed below If you have between 800-1,249 employees then your staging date is 1 October 2013 150-239 staging date is 1 May 2014 Less than 50 is determined by the last 2 characters in your PAYE reference number and start from 1 April 2014 (now delayed until 1 May 2015). A delay to staging dates for employers with less than 3,000 employees was announced by Steve Webb, Pensions Minister on 28 November 2011. An exact timetable should be available in early 2012.
- National Employment Savings Trust NEST are the only provider that have to accept everyone
- Where an employer currently has a pension scheme in place the contributions are normally based on earnings from the 1st £ earned, rather than starting at a minimum limit as banded earnings do. In light of this the legislation will allow for schemes that employers have/put in place to have contributions based on an alternative basis as per the minimum levels on the slide Band earnings between £5,824 and £42,385 9%- employer pays 2%, 3% then 4% Employee pays 1% 3% and 5% but with 20% tax relief 8% employer 1% 2% 3% Employee 1% 3% and 5% but with 20% tax relief 7% employer 1% 2% 3% Employee 1% 3% 4% but with 20% tax relief
- All employers will have to give access to a QWPS. There are no exemptions unlike the policy for Stakeholder, where an employer has to have 5 employees before they have to have a designated stakeholder scheme. Many employers will have schemes that meet the minimum contribution basis and they can continue to use this for existing members by certifying this and reconfirming every year. However unless the other requirements of a QWPS are met, eg, no paperwork required, auto enrolment available and a default investment fund an additional solution will also be required
- Compliance Bulletin June 2015 The Pension Regulator will have enforcement and compliance functions to ensure that employers have relevant schemes in place to meet their duties at their staging date and ongoing. For non compliance there will be a range of penalties and fines that they can impose on the employer. A warning may be given for instance where an employer is accused of offering inducements to encourage members to opt out or leave the scheme. Contributions should be paid by an employer to the scheme provider by the 19th of the month following deduction eg contributions deducted via payroll on the 25 January would have to be with the scheme by 19 February. Avondale They will identify trends and have got teeth that they don’t really want to use. Steve Moy meets with TPR on a monthly basis. Provides us with regular updates.
- As part of the ongoing administration of the scheme any employee who decided to opt out of the QWPS has to be automatically auto enrolled into the scheme every 3 years. They can again opt out at that point. For any employees who have opted for enhanced or fixed protection they must ensure that they opt out within the 1 month period otherwise they will be deemed to have made a contribution and will lose their protection meaning the potential of an Lifetime Allowance Charge Any employee who opts out during the statutory period of 1 month must have any contributions already deducted via payroll returned to them. The employer will then have to reclaim these monies from the QWPS.
- Give hand out of our process here