A workshop updating on the impacts of auto enrolment and comulsory contributions on employers

1. Charity Finance Directors’ Group
Understanding the
Impact of Pension
Reform
Presented by Ian Bird

2. Areas covered
1. General Pensions
Update
2. Auto-enrolment in plain
english
3. Understanding the
National Employment
Savings Trust (NEST)
4. How early decisions
could save employers
huge sums for many
years

3. General Pensions Update
Removal of the default
retirement age
State Second Pension
Proposed flat State
Pension from 2015/2016
Lord Hutton Report and
Impact on final salary
schemes
Tupe & Fair Deal

4. Aims of Pensions Reform
To increase the retirement
savings of the nation
Aimed particularly at the low
paid who do not save
and small employers
The hope is that many
continue to save and not
opt out

5. Auto-enrolment into ‘a’
pension
Key principles:
New employees auto-enrolled after 3 months
All non-pension members enrolled
Employees must join and then can then choose to opt out
Opt outs re-enrolled every 3 years

6. Employers must auto-enrol
into a ‘Qualifying’ pension
scheme
1. Use NEST
2. ‘Certify’ own existing
Group Pension
3. Certified Scheme & Nest

7. Contribution structure
Enrol if over 22 and under State retirement age
with earnings over £7,336
‘Jobholder’- pays 5% of ‘Qualifying
Earnings’ and Employer - pays 3%
‘Qualifying’ earnings = total earnings in the
band between £5,715 and £38,185 (if earn
over £7,336)
Total Earnings include basic salary,
commission, bonuses, overtime and
statutory payments

8. Phasing to help employers
with the extra cost
Phasing in contributions
Original Phasing proposal
2012 Jobholder 1% Employer 1%
2013 Jobholder 3% Employer 2%
2014 Jobholder 5% Employer 3%

9. Staging date by employee numbers
Employee No. Staging date
120,000 or more 1 Oct 2012
50,000 - 119,999 1 Nov 2012
36 Staging Dates 30,000 - 49,999 1 Jan 2013
20,000 - 29,999 1 Feb 2013
10,000 - 19,999 1 Mar 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 Aug 2013
1,250 - 1,999 1 Sept 2013
800 - 1,249 1 Oct 2013
500 - 799 1 Nov 2013
350 - 499 1 Jan 2014
250 - 349 1 Feb 2014
240 - 249 1 April 2014
150 - 239 1 May 2014
90 - 149 1 June 2014
50 – 89 1 July 2014
Less than 50 Aug 2014/ Sept 2016

10. Delayed phasing for early stagers
2012 Jobholder 1% Employer 1%
2013 Jobholder 1% Employer 1%
2014 Jobholder 1% Employer 1%
2015 Jobholder 1% Employer 1%
2016 Jobholder 3% Employer 2%
2017 Jobholder 5% Employer 3%

11. How the numbers work…
Max £3,600 pa
£38,185
£32,470
£20,000
8% Total 8% Total
Contribution Contribution
£1,142.80 £2,597.60
Salary £0
£7,336 contribution
£5,715 £6,500

12. ‘Certification’ of existing contributions
Total
Pay
Total
Total Pay
Pensiona Pay
ble Pay If less
If more than 85%
7% than 85%
8% 9%
Option Option 2 Option 3
1

13. Consequences of non-compliance
It will be a criminal offence for
employer not to:
• set up in first place
• auto-enrol
• re-enrol every 3 years
• make an inducement

14. Individuals not just employers
• Trustees or managers of
pension scheme
• Payroll administrators
• Accountants
• Scheme administrators
Fines:
£400 Fixed penalty
Up to £10,000 per day
Up to 2 years in prison

15. What are the charges?
Annual Management Charge
0.3%
Contribution charge 1.8%
Aim to phase out contribution
charge but no details of when
Aim to recoup the est. £600m of
running costs over 10 years

16. Who will do NEST investment?
US Group
440 Investment Professionals
28 Worldwide locations
$1.9 Trillion under management
No transfers in or out

17. Who will do NEST administration?
Indian Group into:
• IT
• Communications
• Engineering
• Materials
• Services
• Energy
• Consumer products
• Chemicals
Were they selected or last man
standing?
Famous for the cheapest new car
in the world

18. What about the Return On
Investment?
• Employees might think you
are only paying into pension
because you have to
• Employee appreciation
could reduce
• ‘Certification’ because what
you offer is better than
NEST?

19. How do you create and maintain a
good ROI?
Internal marketing
Education
Communication
Individual advice
Forecasting and
targeting
Leads to higher employee
appreciation of pension

20. Salary Sacrifice
One of the most cost-effective ways to get
more into employees’ pensions
Employees elect to reduce their salary and
have their sacrificed salary paid into their
pension.
As the employer will not have to pay National
Insurance (NI) on the sacrificed salary, this
contribution can be enhanced by redirecting
some or all of the NI Saving into the
employee’s pension.

21. Salary Sacrifice
£1 of income for a basic £1 salary sacrifice with
rate tax payer, who employer paying pension
uses it to make a contribution (assuming the
pension contribution full employer’s NI rebate is
added)
Employee Earnings £1.00 Nil (no NI on pension
contribution)
Employer NI £0.14 £1.14
Total cost to employer £1.14 Nil (£1 salary sacrifice instead)
Employee income tax £0.32 Nil
(20%) and NI (12%)
Employee net monthly £0.68 Nil
contribution to pension
Employee’s total gross £0.85 £1.14
contribution to pension

22. Fees and retainers
How are
Fund based remuneration
employers
paying for advice Factored fund based
remuneration
to employees?
Combinations of the above

23. Need for advice will
increase
NEST will mean increased
administration for employers
Higher numbers of employees auto-
enrolled will have questions and
ongoing queries
Adviser numbers down after 2012?

24. Effects of the Retail Distribution review
Minimum qualifications
increased as of Jan
2013
No more factoring of
Adviser numbers predicted commission to cover
to drop cost of enrolment and
advice out from Jan
Too old to make journey? 2013

25. Preparation for 2012?
Decide which type of pension provision to
make for staff from 2012 - NEST, employer
pension scheme or both.
Examine existing pension schemes to
determine if they will meet the minimum
requirements set out by the act & offer
good value
Will you offer salary sacrifice
Consider the cost impact of the
compulsory minimum 3% employer
contribution and your current contribution
basis
Also consider the implication of the Retail
Distribution Review (RDR) and how
employees will pay for any advice

26. Thank you
and questions?

27. • This presentation is for information purposes only and does not constitute advice or a personalised
recommendation
• The value of investments can fall as well as rise
• Past performance is not a reliable indicator of future results
• This presentation is based on our understanding of current and proposed legislation, which may
change
• Tax reliefs are those that apply currently, the value of such reliefs will depend on the
circumstances of the plan holder and may be subject to change in the future
• What you get back at retirement cannot be guaranteed and will depend on how much you pay in,
investment performance and interest rates when you retire

28. Contact Us
For further information, please contact;
Ian Bird DipFA
Foster Denovo Ltd
Tel: 0845 838 6060
Email: ian.bird@fosterdenovo.com
Web: www.fdemployeebenefits.com
Foster Denovo is Authorised and Regulated by
The Financial Services Authority