FEB14ED1 These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction. Part 1: Employer duties Neil

FEB14ED1 These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction.

Part 1: Employer dutiesNeil EsslemontHead of industry liaison teamRebecca WoodleyIndustry liaison team

December 2014

An introduction to automatic enrolment

The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.


Scope

Employer duties

• This is the first part of the Introduction to automatic enrolment module.

• No prior knowledge is needed.

• This module will:

– introduce you to the employer duties, and

– explain the terminology used.

• You may also wish to view these modules :

– Part two of Introduction to automatic enrolment - Getting started

– Staging dates

– Who is a worker?


Contents

• Why is automatic enrolment being introduced?

• When do the employer’s duties start?

• What are the employer’s duties?

• Review of module

• What next?

• Glossary


• As a society we are living longer, healthier lives.

• There are currently four people of working age for every pensioner by 2050 there will be just two.

• Millions of people are under-saving for their retirement.

• Only 1 in 3 private sector workers were in a pension scheme in 2012 and the trend has been downwards for the last 40 years.

• The reforms being introduced now will help millions of individuals to save more (or save for the first time) for their retirement.

Why is automatic enrolment being introduced?


An introduction to automatic enrolmentWhen do the employer’s duties start?


Staging

• The employer duties apply to each employer from their staging date:

– the duties apply to all of the employer’s workers from that date.

• The staging date is based on the size of employer’s PAYE scheme(s) as of 1 April 2012:

– any subsequent changes in PAYE size or usage have no effect on the staging date.

• Generally, larger employers will stage before smaller ones:

– new employers* will go last, from May 2017.

Oct 2012 May 2017April 2014 June 2015

Large employers

Medium employers

Small/micro employers

New* employers

Feb 2018

*Employers that did not exist (or were not using a PAYE)

as of 1 April 2012.


Staging profile (volumes of employers)

Planning ahead is key. Very large volumes staging from January 2016

Q1 2015/16 peak includes small and micro employers


An introduction to automatic enrolment

What are the employer’s duties?


Automatic enrolment legislation gives employers a duty to:

automatically enrol all eligible jobholders communicate to workers providing timely and appropriate information allow non-eligible jobholders to opt-in and entitled workers to join manage opt-outs within the opt-out period and promptly refund contributions automatically re-enrol all eligible jobholders every three years complete declaration of compliance (registration) with the Regulator keep records, and maintain payments of contributions.

The employee safeguards state that employers:

must not induce workers to opt-out or cease membership of a scheme must not indicate to a potential jobholder that their decision to opt-out will

affect the outcome of the recruitment process

Overview of legal duties and safeguards


Planning timeline - www.tpr.gov.uk/planner


Who are your workers?


Qualifying earningsAge range

16-21 22-SPA* SPA*-74

Under £5,668† pa Entitled Worker

Between £5,668 pa and up to £9,440† pa

Non-Eligible Jobholder

More than £9,440† pa Non-EligibleJobholder

EligibleJobholder

Non-EligibleJobholder

* SPA = State Pension Age

** Figures for 2015/16

Entitled workerUnder £5,824** pa

Between £5,824 pa and up to £10,000** pa

Non-eligible jobholder

More than £10,000** pa Non-eligiblejobholder

Non-eligiblejobholder

Eligiblejobholder

Employer must automatically enrol

eligible jobholders into an automatic enrolment

pension scheme

Can request to join a pension

scheme

Non-eligible jobholders can

opt in to an automatic

enrolment pension scheme

Worker categories


Assessing your workers

• Employers will need to assess all their workers on their staging date – unless they choose to use ‘postponement’ (described in later slides).

• All qualifying earnings must be used to assess a worker’s category (ie eligible jobholder, non-eligible jobholder or entitled worker).

• Qualifying earnings is any component of pay that could be considered one of these pay elements (an employer should use their reasonable judgement): – salary/wages, commission, bonuses, overtime and some statutory

payments (excluding expenses and dividends).

• Eligible jobholders must be automatically enrolled into a suitable scheme – but any active member of a ‘qualifying’ pension scheme with that

employer will not need to be automatically enrolled.

• After the staging date, employers will have to:– assess all new workers who join them– assess some workers every pay period (see planning tool ‘ongoing responsibilities’)

– assess some workers again every three years.


What pension schemes can be used?

must be registered in the UK or EEA* must have no barrier to automatic enrolment

must be a qualifying scheme

Automatic enrolment scheme

Qualifying scheme

must be tax registered: and meet minimum criteria

Workers already active members of a qualifying scheme do

not need to be automatically enrolled

Must be used for automatic

enrolment and ‘opt ins’

Employers will need to contribute

to the pension scheme

*European Economic Area states

Employers may also use a qualifying scheme

or an automatic enrolment scheme for

entitled workersScheme for

entitled workers scheme

is registeredEmployers are not required to make an

employer contribution


Pension schemes types

• Pension schemes can be either:

– defined contribution (DC) eg ‘money purchase’

– defined benefit (DB) eg ‘final salary’ or ‘career average’, or

– hybrid: a mix of DB and DC.

• An automatic enrolment scheme must be used for:

– the automatic enrolment of eligible jobholders, and

– the enrolment of any jobholders who ‘opt-in’.

• Qualifying schemes:

– if an existing scheme is not a qualifying scheme, scheme members would need to be automatically enrolled into an automatic enrolment scheme if they are eligible jobholders

– employers may want to change the contributions levels and/or scheme rules of their existing schemes to make them qualifying.


Min DC 8% total*

Min DC 5% total*

Minimum DC 2% total contribution*

DC scheme minimum contributions

Oct 2018Oct 2017

*% of qualifying earnings

Feb 2018

Min DC 2% employer*

Min DC 3% employer*

Phase 1 Phase 2 Phase 3

Oct 2012 May 2017April 2014 June 2015

Large employers

Medium employers

Small/micro employers

New

employers


Postponement

• Postponement suspends the duty of automatic enrolment and the need to assess and can be used:– at the employer’s staging date for any or all existing workers– on the first day of employment for any new joiner after the staging date, and– on the date a worker meets the criteria to be an eligible jobholder.

• Only one postponement per worker can be made at a given time.

• Can be from one day up to maximum of three months – and this can vary by individual.

• The employer must notify any postponed worker within six weeks of the start of postponement.

• The worker has the right to opt-in or join during postponement.

• Employer must assess on the last day of postponement and automatically enrol eligible jobholders or, for those workers not eligible at that point, monitor them each future pay period.


Opting-in and joining


‘Opting-out’

• Workers automatically enrolled (or who have ‘opted-in’) may ‘opt-out’.

• Employer must inform staff of their right to ‘opt-out’ and how to ‘opt-out’.

• The employer must not give out or send out ‘opt-out’ forms:

– requests to ‘opt-out’ must be handled by the scheme provider, and

– completed forms would normally be sent to the employer.

• A one calendar month ‘opt-out’ window starts on the later of two dates: once the worker is an active member of the pension scheme, or when the employer issues a notice of enrolment letter/email to the worker.

• The worker will get a full refund of all contributions.

• Early ‘opt-outs’ (before the ‘opt-out’ window starts) – are not allowed.

• After the ‘opt-out’ window has closed, the worker may still request to cease membership of the pension scheme (under the scheme rules).


Communicating to workers

• At staging, employers will need to communicate* to all their workers, (including existing pension scheme members).

• Employers need to inform workers of their rights and whether they are being automatically enrolled or postponed.

• The deadlines for communication are:

– two months after staging; for existing scheme members, or

– within six weeks for all other communications.

• Communications must be sent directly to the individual (eg by letter, email, HR web portal).

• We have provided example ‘template’ letters, which may be customised.

* See our planning tool and ‘tell your staff’


Re-enrolment


Record-keeping

• Employers must keep records* about their workers and the pension scheme used to comply with the employer duties (pension providers and trustees will also have duties to keep records).

• An employer can use electronic or paper filing systems to keep or store any records, as long as these records can be produced in a legible way.

• Most records must be kept for six years. Those that relate to opting out must be kept for four years.

• The records must be provided to The Pensions Regulator, on request.

• We can conduct an inspection, if we have reasonable grounds to do so (for example, this may be as a result of a whistleblower alert).

* See planning tool and ‘maintain records’


Declaration of compliance (registration)

• Employers must complete the declaration* process to confirm they have complied. (* see planning tool ‘declaration of compliance’)

• For employers who stage from 1 January 2014 onwards, the deadlines are:– five months after the staging date(for employers who staged

in 2012 and 2013, the deadline after staging was four months), and– two months after every re-enrolment date.

• Employers may receive a penalty fine if they do not complete the declaration

on time.

• Employers will need to provide certain details, for example: – which pension schemes were used to comply with the duties, and– the number of eligible jobholders automatically enrolled into each scheme.

• All postponements applied at the staging date must have come to an end before the declaration can be completed.

• You can start the online process early and partially complete your declaration.



Question 1: Who does the law make responsible for carrying out the duties?

Answer: The employer (even if some actions are delegated to a third party).

Question 2: Who must be enrolled, if they request to opt in?

Answer: A non-eligible jobholder (at any time) or an eligible jobholder during postponement.

Question 3: Only employees are included in the automatic enrolment legislation.True or false?

Answer: False. Duties may apply to other workers, not just employees (eg personal services workers).

Questions and answers


Question 4: If an eligible jobholder is an existing member of a non-qualifyingpension scheme, what will the employer need to do?

Answer: They could stay in the non-qualifying scheme but this would not

meet the employer duties. The employer could see if the existing

scheme can be made qualifying, and if it can, make the changes

and continue to use it. Alternatively, the employer could enrol

them into a new automatic enrolment scheme.

Question 5: What happens if a worker sends in an opt-out notice before their opt-out window has started?

Answer: It cannot be accepted. The opt-out window will not open until theyare an active member of the pension scheme and the employerhas issued the enrolment letter.

Questions and answers continued…


Question 6: How long can the assessment of workers be postponed?

Answer: Between one day and three months.

Question 7: If postponement is used, what three duties still apply?

1. Issue postponement notices, within six weeks - to all postponed staff (including new joiners).

2. Enrol any jobholders who opt in during postponement into an automatic enrolment pension scheme.

3. Enrol any entitled workers who want to join a pension scheme.



Question 8: What is the deadline to complete the declaration of compliance (registration) after staging?

Answer: Five months after the staging date for those staging from January 2014.

Question 9: Who do employers need to write to at staging (eg send a letter or email)? Workers not in a pension scheme? Active members of a qualifying pension scheme? All workers? Eligible jobholders being automatically enrolled?



What next?


Know your staging

date

Who is a worker?

Reviewingyour pension

schemes

Employee safeguards

Assessmentand automatic

enrolment

Communicate to your workers

Postponementand

transitionalperiod

Joining/opting In

Record- keeping/

Contributeto your

pensions

Opting out

Contractual versus

Statutory enrolment

Declaration ofcompliance

(register)

Now Between now and staging At staging and beyond

Automatic enrolment

Introductionto automatic

enrolment

Part 1: Employer

duties

Part 2:Getting started


Useful links

• Modules: Introduction to automatic enrolment, Staging dates and Who is a worker?www.tpr.gov.uk/help-clients

• Staging date tool:www.tpr.gov.uk/employers/tools/staging-date.aspx

• Planning tool:www.tpr.gov.uk/planner

• Letter templates for employers:www.tpr.gov.uk/employers/letter-templates-for-employers.aspx

• Information about declaration of compliance (registration): www.tpr.gov.uk/employers/automatic-enrolment-declaration.aspx www.tpr.gov.uk/docs/automatic-enrolment-online-registration-checklist.pdf

• Our detailed guides for employers and pension professionals:www.tpr.gov.uk/pensions-reform/detailed-guidance.aspx


Useful links continued…

More information about pensions and automatic enrolment:

• The Association of British Insurers:www.abi.org.uk/pensionproviders

• The National Association of Pension Funds:www.napf.co.uk

• National Employment Savings Trust:www.nestpensions.org.uk

• Independent Financial Advisers:www.unbiased.co.uk

www.vouchedfor.co.uk

• The Pensions Regulator: www.tpr.gov.uk/docs/selecting-a-good-automatic-enrolment-scheme.pdf

www.tpr.gov.uk/docs/introduction-code-13.pdf


We’d appreciate your feedback on this presentation

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Thank you

The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.


Glossary


Automatic enrolment terms

• Automatic enrolment scheme – a qualifying pension scheme which can be used for automatic enrolment

• Eligible jobholder (EJH) – a worker who must be automatically enrolled into an automatic enrolment scheme

• Entitled worker (EW) – a worker who is entitled to join a pension scheme

• Jobholder – an eligible jobholder or non-eligible jobholder

• Non-eligible jobholder (NEJ) – a worker who has the right to opt in to an automatic enrolment scheme

• Office holder – a person who has been appointed to a position by a company or organisation, but doesn’t have a contract or receive regular payment

• Personal services worker – an individual who has contracted to perform work or services personally (this is sometimes referred to as a ‘contract of services’)


Automatic enrolment terms continued…

• Postponement – an optional mechanism to delay the automatic enrolment duties for workers

• Qualifying earnings – the earnings which determine a worker’s category (EJH, NEJ or EW) and (as a band of earnings) may be used as the definition of pensionable earnings

• Qualifying scheme – a pension scheme which meets the minimum criteria and so existing members who are eligible jobholders will not need to be automatic enrolled

• Staging date – the start date of an employer’s automatic enrolment duties

• Worker – an individual who works under a contract of employment (or a personal services worker)


Other terms

• Active member – a person who is currently a member of the pension scheme (and would normally be contributing to the scheme)

• Defined benefit (DB) – a pension scheme where the benefits payable on retirement are known (eg ‘final salary’, where the retirement income is based on the member’s salary)

• Defined contribution (DC) – a pension scheme where the contributions are known, but the benefits are not guaranteed and are likely to depend on the fund value at retirement

• Deferred member – a person who is no longer an active member of the pension scheme, but has accrued some benefits (payable on retirement or could be transferred)


Other terms continued…

• Hybrid – a pension scheme with a mixture of DB and DC components

• PAYE (Pay As You Earn) – HM Revenue & Customs’ (HMRC) tax payment mechanism

• PAYE scheme – HMRC’s record for an employer who employs a worker or workers for whom PAYE taxable income is payable

• PAYE scheme reference number – a number issued by HMRC to identify each employer’s PAYE scheme(s)

• Pensionable earnings – the earnings on which pension contributions are due

Documents

FEB14ED1 These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction. Part 1: Employer duties Neil