Pantheon Financial Management LtdPantheon Financial Management Ltd

Making a Success ofMaking a Success ofPensions ReformPensions ReformChris Rose and Mark DowdeChris Rose and Mark Dowde

May 2012May 2012

Pantheon Financial Management LtdPantheon Financial Management Ltdwww.pantheonfinancial.co.uk

Independent Financial AdvisersIndependent Financial Advisers

Corporate Services Corporate Services Business Strategies; Business ProtectionBusiness Strategies; Business Protection Employee BenefitsEmployee Benefits

Group CommunicationsGroup Communications Share Schemes; Redundancy ProgrammesShare Schemes; Redundancy Programmes Retirement CounsellingRetirement Counselling

Private Client ServicesPrivate Client Services Retirement Planning; Investment PlanningRetirement Planning; Investment Planning Tax & Trust Planning Tax & Trust Planning

Pantheon Financial Management LtdPantheon Financial Management Ltdwww.pantheonfinancial.co.uk

Independent Financial AdvisersIndependent Financial Advisers

The material provided by this presentation is for The material provided by this presentation is for general information only and does not constitute general information only and does not constitute investment, tax, legal of other forms of financial investment, tax, legal of other forms of financial advice.advice.

OVERVIEWOVERVIEWWhy reform workplace pensions?Why reform workplace pensions?

Changes to workplace pensionsChanges to workplace pensions

The National Employment Savings Trust (NEST)The National Employment Savings Trust (NEST)

NESTNEST

(NATIONAL EMPLOYMENT SAVINGS TRUST)(NATIONAL EMPLOYMENT SAVINGS TRUST)

10-11m people will be auto enrolled10-11m people will be auto enrolled

In 1901 there were 10 workers for every In 1901 there were 10 workers for every pensioner, now there are 4 workers for every pensioner, now there are 4 workers for every pensioner and by 2050 this is expected to be 2 pensioner and by 2050 this is expected to be 2 workers for every pensioner workers for every pensioner 

(Source: DWP Report May 2011)(Source: DWP Report May 2011)

Why Reform Workplace Pensions?Why Reform Workplace Pensions?

The Pension CommissionThe Pension Commission

2003-2005 Pension Commission reviewed the 2003-2005 Pension Commission reviewed the UK pensions system and made UK pensions system and made recommendationsrecommendations

Pension Commission found that:Pension Commission found that:

-- Up to 12 million people were not saving Up to 12 million people were not saving enough for retirementenough for retirement

-- Longevity – simply put, people are living Longevity – simply put, people are living longer in retirement.longer in retirement.

The Pension Commission -The Pension Commission -LongevityLongevity

The Pension CommissionThe Pension Commission

State Pension could not meet this State Pension could not meet this challengechallenge

Spending on State Benefits for pensionersSpending on State Benefits for pensioners

- 2006/2007 - £84.6 billion- 2006/2007 - £84.6 billion

- 2035/2036 - £189.1 billion*- 2035/2036 - £189.1 billion*

Taking no action would lead to an Taking no action would lead to an unaffordable burden on taxpayersunaffordable burden on taxpayers

*Projected –source: Pensions Policy Institute Key Facts / Scottish Life April *Projected –source: Pensions Policy Institute Key Facts / Scottish Life April 20122012

The Pension Commission The Pension Commission RecommendationsRecommendations

Fairer, more generous State Pension coverageFairer, more generous State Pension coverage

(flat rate £140 / week (no set date currently in (flat rate £140 / week (no set date currently in place))place))

System of automatic enrolment into pension System of automatic enrolment into pension savingsaving

Minimum employer contribution to workers’ Minimum employer contribution to workers’ pensionspensions

New, national pension scheme designed to New, national pension scheme designed to provide a simple and low cost way of saving for provide a simple and low cost way of saving for low-to-moderate earnerslow-to-moderate earners

Changes to Workplace PensionsChanges to Workplace Pensions

Who Does What?Who Does What?

DEPARTMENT FOR WORK & PENSIONS (DWP)DEPARTMENT FOR WORK & PENSIONS (DWP)

Scope of automatic enrolmentScope of automatic enrolment

Staging and phasing timetableStaging and phasing timetable

THE PENSIONS REGULATORTHE PENSIONS REGULATOR

Monitor and regulate the employer duties. Monitor and regulate the employer duties.

NEST (NATIONAL EMPLOYMENT SAVINGS NEST (NATIONAL EMPLOYMENT SAVINGS TRUST)TRUST)

A new, trust-based pension scheme for low to A new, trust-based pension scheme for low to moderate earnersmoderate earners

Public service obligation to accept all employersPublic service obligation to accept all employers

2012 Reforms: What’s Changing?2012 Reforms: What’s Changing?

Employers have to offer a contribution to Employers have to offer a contribution to certain employeescertain employees

No action will result in a qualifying No action will result in a qualifying employee automatically saving through a employee automatically saving through a workplace pension.workplace pension.

This is as a result of Automatic enrolmentThis is as a result of Automatic enrolment

Objective:Objective:

Saving is the normSaving is the norm

2012-20162012-2016

Impact on Employers Impact on Employers (Pensions Act 2008 and 2010 Review(Pensions Act 2008 and 2010 Review))

Automatic enrolment of “eligible jobholders”Automatic enrolment of “eligible jobholders”

From age 22 up to State Pension AgeFrom age 22 up to State Pension Age

Those earning more than the tax thresholdThose earning more than the tax threshold

““staged” in from Oct 2012, depending on staged” in from Oct 2012, depending on employee numbersemployee numbers

3 month waiting period, plus flexibility to bring 3 month waiting period, plus flexibility to bring forwardforward

Re-enrolment required every 3 years, new Re-enrolment required every 3 years, new post review flexibilitypost review flexibility

Individuals can choose to opt out but Individuals can choose to opt out but employer cannotemployer cannot

Impact on Employers Impact on Employers (Pensions Act 2008 and 2010 Review(Pensions Act 2008 and 2010 Review))

Minimum Employer Contributions – Employers have to pay in at least Minimum Employer Contributions – Employers have to pay in at least part of a minimum contribution with individuals and HMRC contributing part of a minimum contribution with individuals and HMRC contributing the restthe rest

Contributions based on earnings band £5,564 and £42,475 in 2012/13 Contributions based on earnings band £5,564 and £42,475 in 2012/13 tax year (Based on Draft Regulation source: tax year (Based on Draft Regulation source: - : “The Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2012”

3% of “band earnings” minimum employer contribution + tax relief + 3% of “band earnings” minimum employer contribution + tax relief + employee contribution = total 8% minimum contributionemployee contribution = total 8% minimum contribution

Total minimum contribution payable from October 2018Total minimum contribution payable from October 2018

Example – earnings £30,000 – E’er £62.41 & E’ee £104.02 gross per Example – earnings £30,000 – E’er £62.41 & E’ee £104.02 gross per month (source: The Pension Regulator May 2012)month (source: The Pension Regulator May 2012)

Minimum contribution levelsMinimum contribution levels

4%Employee

3%Employer

1%Tax relief

The total minimum The total minimum contribution to a employees contribution to a employees retirement pot will be 8% of retirement pot will be 8% of the qualifying earningsthe qualifying earnings

Of this 8%, the employer will Of this 8%, the employer will have to contribute a minimum have to contribute a minimum of 3%of 3%

The rest will be made up of tax The rest will be made up of tax relief and the employee’s relief and the employee’s contributioncontribution

DWP: Planned StagesDWP: Planned Stages

Large EmployersLarge Employers

Medium EmployersMedium Employers

Small / Micro EmployersSmall / Micro Employers

New PAYEsNew PAYEs

Staging dates 01/10/2012 through to 01/02/2018Staging dates 01/10/2012 through to 01/02/2018(Source: Pension Regulator Website May 2012)(Source: Pension Regulator Website May 2012)

The Administrator of NESTThe Administrator of NEST

Tata Consultancy ServicesTata Consultancy ServicesIT services, business solutions and outsourcingIT services, business solutions and outsourcing

International – 137 offices in 42 countries –International – 137 offices in 42 countries –

88 delivery centres in 18 countries88 delivery centres in 18 countries

160,000 employees globally160,000 employees globally

More than 60 sites in the UKMore than 60 sites in the UK

Tata and Diligenta (UK Operation) – experienced Tata and Diligenta (UK Operation) – experienced partnerspartners

Diligenta is a UK based, FSA regulated subsidiary of Tata Consultancy Diligenta is a UK based, FSA regulated subsidiary of Tata Consultancy Services – the world’s leading IT consulting, services and business Services – the world’s leading IT consulting, services and business outsourcing (BPO) organisations.outsourcing (BPO) organisations.

Diligenta manage and support Life & Pensions operationsDiligenta manage and support Life & Pensions operations

33rdrd Party Administrators – More than 30 years experience in UK insurance Party Administrators – More than 30 years experience in UK insurance sector with 90 insurance clients including the top 7 UK insurers (including sector with 90 insurance clients including the top 7 UK insurers (including AXA Group, Phoenix Group, L&G, Skandia)AXA Group, Phoenix Group, L&G, Skandia)

NEST Investment OptionsNEST Investment Options

NEST NEST Retirement FundRetirement Fund

NEST Higher Risk FundNEST Higher Risk Fund

NEST Pre-retirement FundNEST Pre-retirement Fund

NEST Ethical FundNEST Ethical Fund

NEST Sharia Fund NEST Sharia Fund

NEST Lower Growth FundNEST Lower Growth Fund

NEST NEST Corporate Bond FundCorporate Bond Fund

Charges – How will NEST compare?Charges – How will NEST compare?

NESTNEST - - 1.8% Contribution Charge; 0.3% Annual 1.8% Contribution Charge; 0.3% Annual Management Charge (AMC)Management Charge (AMC)

Contribution charge deducted until set cost met. Contribution charge deducted until set cost met. Gross contribution of £100 will result in £98.20 Gross contribution of £100 will result in £98.20 investment.investment.

Calculated by NEST to average out at a 0.5% Calculated by NEST to average out at a 0.5% AMC but dependent on term to retirement. AMC but dependent on term to retirement. Combination of Contribution Charge and Combination of Contribution Charge and AMC.AMC.

2012 – Employer Options2012 – Employer Options

Choices for employees

Existing DB and DC

schemes

New DC automatic enrolment schemes

Existing/NewExisting DB

and DC schemes

NEST

+

Sole schemeAssociate, entry level or base scheme

How NEST can be usedHow NEST can be used

Sole schemeSole schemeOffered to all employeesOffered to all employees

Associate schemeAssociate schemeFor a category of employee to sit alongside existing scheme For a category of employee to sit alongside existing scheme e.g. the low paide.g. the low paid

Entry level schemeEntry level schemeWhere your existing scheme has a waiting periodWhere your existing scheme has a waiting period

Base schemeBase schemeTo which minimum contributions are made for all To which minimum contributions are made for all employees, with another scheme on topemployees, with another scheme on top

Any Questions?Any Questions?

This information is based on our understanding of current taxation law and Her Majesty’s Revenue and Customs practice,

which may change in the future.

Price of units can fall as well as rise. Past performance is not a guide on which to base future returns.

Pantheon Financial Ltd group of companies incorporating Pantheon Financial Management Ltd and Pantheon Financial Investments Ltd. Henton & Co. Financial Services is a trading style of Pantheon Financial Management Ltd. Pantheon Financial Ltd has no connection with Pantheon Ventures Ltd or its affiliated companies or with any funds managed or

advised by Pantheon Ventures Ltd or its affiliated companies, including Pantheon Participations PLC.

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