8 Steps to Auto Enrolment

8 Steps to Auto Enrolment success

1. Identifying your staging date

2. Planning

3. Opening a dialogue with your payroll provider

4. Cleansing your data

5. Assessing your workforce

6. Budgeting

7. Assessing your pension provider

8. Quality adviser support

1. Identifying your staging date

• The staging date is your deadline for auto enrolment

• Based on your payroll size as of April 2012

• Check your staging date with your PAYE reference on TPR’s website:

# Employees Staging Date

90 or more 1st May 2014

62 to 89 1st July 2014

61 1st August 2014

60 1st October 2014

59 1st November 2014

58 1st January 2015

54 to 57 1st March 2015

50 to 53 1st April 2015

49 or below 1st June 2015 to 1st April 2017http://www.thepensionsregulator.gov.uk/employers/tools/staging-date.aspx

A note about postponing…

• Staging date can be postponed for up to 3 months

• Employers may set different postponement periods for different staff categories

• A postponement notice must be issued within 1 month of staging date – or sooner

• Employees can still “opt in” during a postponement period

2. Planning

Early planning is vital…

AE Project

Finance

Payroll

3rd Party Adviser

s

HR

Collate data from employer. Identify HR / payroll processes, pay reference periods. Check contracts of employment (legal input?). Review existing pension arrangements. Nominate key roles and responsibilities. Can your business software support Automatic enrolment?

Decide on Auto Enrolment Software . Decide on Auto Enrolment Scheme. Establish contribution costs, Salary Exchange included? Identify any changes to current HR/payroll processes. Data cleansing. Agree employee communications. Consult with staff re any changes to T&Cs.

Detail project plan. Agree postponement period. Start employee communications Building and testing of Auto Enrolment Software.

Implementation of agreed strategy, working with Auto Enrolment Software provider in parallel with payroll processes. Implement postponement and opt-out processes.

Employee assessment. Communications to all types of worker. Process opt-outs, manage refunds, process opt-ins, monthly reports to providers. Register scheme with TPR. Ongoing compliance & record keeping, re-enrolment processes. Monitor ages and earnings , assess new starters.

Planning24m-12m

Strategy11m-7m

Design6m-4m

Implementation3m-1m

Staging date and Ongoing

Suggested timeframes

3. Opening a dialogue with your payroll provider

• Payroll must be compatible with auto enrolment requirements

• Ideally, your payroll system should have an automated exchange of data with your pension system

HR System

Pension Administration

SystemPayroll

Middleware

Each employee will require between 32 and 36 fields of data depending on which pension provider you work with

That’s a lot of data, so it’s important to begin dialogue with your payroll provider now to work out what data you should be collecting

4. Cleansing your data

• Often ignored but crucial

• Employee data must be complete, validated and up to date

Employee information TPR may request

• Names

• Dates of birth

• Gross qualifying earnings

• NI numbers

• Contributions paid

• Employee’s auto enrolment date

• Pension(s) scheme information

5. Assessing your workforce

Proposed 2014/15 Employee Categories

AGE <£5,772 £5,772 - £10,000 £10,000 - £41,865

16-21 Entitled Worker Non-Eligible Jobholder Non-Eligible Jobholder

22-SPA* Entitled Worker Non-Eligible Jobholder Eligible Jobholder

SPA*-75 Entitled Worker Non-Eligible Jobholder Non-Eligible Jobholder

*State Pension Age

Eligible Jobholders MUST be auto enrolled, but can then opt out if they wish

• Early opt outs are not allowed - employees must be enrolled before opting out

• If an incomplete or incorrect opt out is completed, an extra 2 weeks is sometimes given to complete opt out

Opting Out

Opting In

• Employees not eligible to be automatically enrolled may opt in

• Eligible jobholders may opt in during any postponement/transitional stage

• Non-eligible jobholders may opt in at any point

• Entitled workers may request to join (no obligation on employer to contribute)

6. Budgeting

Auto Enrolment costs

Pension contributions – phasing over next 4 years, dependent on definition of earnings

Administration

Definitions of earnings under Auto Enrolment

Definition of earnings

Tier 1 Basic salary

Tier 2 Basic salary, as long as pensionable pay constitutes 85% of total earnings

Tier 3 Full P60 earnings

Qualifying Earnings

Basic salary, bonuses, overtime, commission, sick pay, maternity leave, adoption pay

Phasing of Auto Enrolment contributions

Statutory basis

Tier 1 Tier 2 Tier 3

Earnings definition

Qualifying earnings

Basic salary Basic salary, as long as pensionable pay constitutes 85% of total earnings

Full P60 earnings

Oct 2012 to Oct 2017

2% (of which 1% employer)

3% (2%) 2% (1%) 2% (1%)

Oct 2017 to Oct 2018

5% (2%) 6% (3%) 5% (2%) 5% (2%)

Oct 2018 onwards

8% (3%) 9% (4%) 8% (3%) 7% (3%)

Key: Total contribution % in black (employer contribution % in blue)

Cost of administration

Auto enrolment is surprisingly resource-intensive

Activity Estimated time required

Designing communications Up to 5 days

Liaising with payroll provider Up to 6 days

Worker assessment and categorisation

Up to 5 days

Processing opt outs and opt ins Up to 6 days

Development of pension plan Up to 20 days

Total to implement auto enrolment

Up to 103 days

Ongoing administration, per month

Up to 3.5 daysSource: Creative Auto Enrolment

7. Assessing your pensions provider

• Your current provider may NOT be able to support auto enrolment

• 3 providers offer dedicated auto enrolment solutions:

National Employment Savings Trust (NEST)

NOW: Pensions

The People’s Pension

National Employment Savings Trust (NEST)

• UK government backed pension scheme

• Charges 0.3% a year + 1.8% on contributions

• Employees can carry on contributing to a NEST pension after leaving job

• Limit on contributions levels

• Savings can't be transferred from other schemes - until 2017

• Sharia compliant

NOW: Pensions

• Based on a Danish government scheme

• Charges 0.3% a year + £1.50 per month administration

• No investment choice, single investment strategy

• Employees cannot carry on contributing after leaving job

• Higher limit on contributions

• Transfers to other pensions possible at no charge

• Sharia compliant

The People’s Pension

• Not-for-profit organisation

• Single charge 0.5% a year

• Investment choice based on 3 different profiles

• Employees can carry on contributing after leaving job

• Transfers to other pensions possible at no charge

• Sharia and ethical compliant

8. Quality adviser support

Having a good adviser will make the whole Auto Enrolment process simpler.

Here’s what some of our past clients say about the advantages of working with Davidson Asset Management for Auto Enrolment…

Bonus step: Effective communication

11 quick tips:

1. Timing is everything

7. Q&A leaflets

2. Messages in payslips

8. Letters with payslips

3. Staff briefings 9. Workshops

4. Cascade information down the line

10. Think about foreign languages

5. Short videos 11. Staging date letter

6. Be different

In summary…

• When does my scheme need to be in place?

• Who do I have to enrol into the scheme?

• How much is it going to cost?

• What are my options in terms of providing a qualifying scheme?

• What can I do to fund more efficiently?

• What systems do I need for auto enrolment administration?

Contact DAM for further information

Davidson Asset Management Limited is authorised and regulated by the Financial Conduct Authority

www.employee-benefit-consultants.co.uk

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russell.davidson@davidsonasset.co.uk

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