shine webinar auto enrolment

Automatic enrolment

Francois Barker & Teresa Dolan Eversheds LLP

The legal framework

Issues covered

• What & When: summary of key duties and staging dates

• Who: which staff are covered and possible penalties

• How: using existing schemes and managing costs

__________

Questions

Question for you ....

• When is your organisation’s staging date?

a) already passed?

b) Jan – June 2013?

c) July – Dec 2013?

d) 2014?

e) don’t know

Session 1

Key duties

Key employer duties

1. From staging date, enrol “eligible jobholders” automatically into an automatic enrolment scheme

2. Pay minimum DC contributions or provide minimum DB benefits

3. Re-enrol eligible jobholders who opt-out approx every 3yrs

Other employer duties

• Provide eligible jobholders, non-eligible jobholders and entitled workers with prescribed information

• Register with Pensions Regulator within 4 months of “staging date”

• Keep records of auto-enrolments, opt-ins, opt-outs and contributions

• legally, for at least 6 years (4 years for opt-outs)

• practically, for much longer

• Not to induce opt-outs

Worker categories and rights

Earnings Age 16-21 Age 22-SPA SPA- age 75

£8,105+ in

2012/13 (£9,440+ in 2013/14)

Non-eligible jobholder –

may opt-in to an automatic enrolment scheme

Eligible jobholder –

must be auto-enrolled into an

automatic enrolment scheme

Non-eligible jobholder –

may opt-in to an automatic enrolment scheme

£5,564 - £8,105 (or £9,440)

Non-eligible jobholder – may opt-in to an automatic

enrolment scheme

Less than £5,564

Entitled worker – can request to join a pension

scheme (but it does not have to be a qualifying scheme and not entitled to employer contributions)

Opting-out

• Eligible jobholders and non-eligible jobholders who opt-in can opt-out within 1 month and receive a refund of their contributions, but:

– not before they have been auto-enrolled

– opt-out paperwork must normally come from scheme

– employer must not incentivise opt-outs

– employers must re-enrol roughly every 3 years

• Can leave scheme after statutory opt-out window

• Beware workers with enhanced/fixed protection!

When?

• Phased introduction from 1 Oct 2012 – see www.tpr.gov.uk/staging

• ‘Staging date’ determined by number of people in employer’s PAYE payroll scheme on 1 April 2012

• What about:

– employers with more than one payroll scheme?

– multi-employer payroll schemes?

– small employers in large payroll scheme?

When?

Size of payroll scheme on 1 April 2012

Staging date

120,000 – 10,000 1 Oct 2012 – 1 Mar 2013

9,999 – 250 1 Apr 2013 – 1 Feb 2014

249 – 50 1 Apr 2014 – 1 Apr 2015

Less than 49 1 June 2015 – 1 Apr 2017

New employers 1 May 2017 onwards

Question for you ....

• How do you intend to deal with eligible jobholders who have fixed or enhanced protection?

a) enrol them

b) enrol them plus side conversation

c) not enrol them

Session 2

Which staff are included and possible penalties

Who is a “worker”?

In scope

Employees

Those performing work personally and not as part of own business

Out of scope

x Self-employed

x One person companies

x Office holders

x Volunteers

agency staff ? casual/zero hours staff?

What about?

International workers

• AE only applies to workers who are “working or ordinarily working in the UK”

• Question of fact – useful guidance on secondments

Safeguards for workers

Eligible jobholders

Non-eligible jobholders

Entitled workers

Prohibited recruitment conduct

X X X

Not to be unfairly dismissed or suffer detriment on grounds related to new employer duties

X X X

Inducements X X

X

Note – safeguards in force since 1 July 2012

Enforcement by the Pensions Regulator

Stage 1

• Compliance notice

• Unpaid contributions notice

Stage 2

• Fixed penalty notice

• £400

Stage 3

• Escalating penalty notice

• £50 - £10,000 per day

TUPE and auto-enrolment

• TUPE Pensions Protection Regulations –v- auto-enrolment

• Duty to automatically enrol transferring employees?

• Use of past opt-outs not allowed

Question for you ....

• Which department within your organisation do you think is the most appropriate to lead the AE initiative and monitor compliance?

a) Pensions

b) HR

c) Payroll

d) IT

e) Legal

Session 3

Using existing schemes and managing costs

Using an existing scheme

• An automatic enrolment scheme:

(i) must be a qualifying pension scheme, and

(ii) must not contain any provisions which:

– prevent the employer fulfilling its auto-enrolment and re-enrolment duties, and

– require a member to make a choice or provide information

• Review eligibility/admission requirements

• Default fund required

What is a qualifying pension scheme?

• To be a qualifying pension scheme, a scheme must:

– be an HMRC registered occupational or personal pension scheme operating automatic enrolment; and

– meet minimum "quality standards"

Minimum DC contributions

• Minimum employer DC contributions to be phased-in over 5 years

Date Minimum employer contribution

(% of qualifying earnings)

Minimum total contribution

(% of qualifying earnings)

Staging date – Sept 2017

1% 2%

Oct 2017 - Sept 2018

2% 5%

From Oct 2018 3% 8%

Qualifying pension scheme - DC • Total contributions of 8% of “qualifying earnings” (min 3%

employer)

OR

• Total contributions of 9% of “pensionable earnings” (min 4% employer) – where pensionable earnings are equal to or greater than basic pay

OR

• Total contributions of 8% of “pensionable earnings” (min 3% employer) - where at least 85% of total earnings of all eligible jobholders is pensionable

OR

• Total contributions of 7% of “earnings” (min 3% employer) – i.e. contributions are payable on all earnings

Qualifying pension scheme - DB

• Contracted-out

OR

• Contracted-in with:

– pension for life at state pension age

– annual accrual rate of 1/120th of average “qualifying earnings” in last three tax years preceding the end of pensionable service up to maximum of 40 years, and

– statutory revaluation and pension increases

• Additional requirements apply to hybrid schemes

and average salary schemes

Question for you ....

• Which pension arrangement is your organisation going to use for auto enrolment?

a) trust based DC scheme

b) contract based DC scheme

c) DB scheme

d) external Master Trust

e) unsure

Saving costs - ‘postponement’

• Employers can operate a waiting period of up to 3 months by giving notice to workers

• May help with:

– casual/seasonal workers

– temporary workers

– quick leavers

– alignment of auto-enrolment with payroll

• Jobholders’ right to opt-in

Transitional period for DB schemes

• Employers with open DB/hybrid schemes can delay auto-enrolment until 1 October 2017

• Only applies to certain eligible workers

• Must give notice and auto-enrol into appropriate scheme at end of transitional period

• Worker can still opt-in to a qualifying scheme

Saving costs - salary sacrifice

• Employers can continue to use salary sacrifice but need to consider:

– right to opt-out and HMRC guidance

– how to implement

– timing of implementation

• Salary sacrifice arrangement could bring earnings under trigger

Question for you ....

• Of those who don’t already use salary sacrifice to save NI on pension contributions, who would now consider using this mechanism?

YES or NO

Conclusion – key action points

1 Identify your staging date and work back

2 Find an owner and form a working group

3 Identify all “workers”

4 Check terms of self employment / agency / secondment

5 Decide if you want to adapt an existing scheme - or use a new one - or both

6 Consider using postponement mechanisms

7 Consider using salary sacrifice to save costs

8 Consider changes to wider benefits package

9 Take account of fixed / enhanced protection

10 Allow enough time

Any questions?

Contact details

Francois Barker

Pensions Partner

francoisbarker@eversheds.com

0845 497 1559

07825 341131

Teresa Dolan

Employment Partner

teresadolan@eversheds.com

0845 497 1540

07775 010897