Auto Enrolment: Systems & Schemes

DM2594051 v1AThis presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way.

Automatic Enrolment webinar- Systems & Schemes

Welcome

26th September 2013


Since the recording of this webinar there have been a number of changes in automatic enrolment legislation. The principles described remain the same. The changes are:

Automatic enrolmentChanges in legislation - 1 April 2014

• The deadline for completing registration with the regulator has been extended to five calendar months.

• The period for completing automatic enrolment (joining window) has been extended to 6 weeks

• A new definition of a pay reference period has been introduced which allows employers to choose to align the assessment of their workers to tax weeks or tax months

• The deadline for a number of the information requirements has been extended to 6 weeks www.tpr.gov.uk/docs/resource-info-to-workers.pdf

• The Opt-out window remains as one calendar month.

• For the earnings thresholds for the current tax year visit our website at: www.tpr.gov.uk/earnings-thresholds

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


Scope of the webinar

• Introduction

• Your pension arrangements

• Your payroll & IT systems

• The questions you might need to ask to ensure these systems work together

• Who will be involved and what will be their role


Automatic Enrolment legislation give 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

Facilitate Opt Outs within the opt out period and promptly refund contributions

Complete registration with The Pensions Regulator

Keep records

Maintain contributions

Automatically re-enrol all eligible jobholders every three years

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 & employee safeguards


Staging profile (volumes of employers & workers)

ERSP Staging Profile set 19 January 2012, forecast on 1 April 2012 data

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Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

Empl

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Total employers required to complete registration Employees to be assessed ('000s)

Average of 10,000 medium size employers staging

each month in April, May & July 2014

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Payroll & IT systems


DM2594051 v1A The content of these slides should not be altered in any way.

No

STEP 1

Assessment Date

Are they anActive Member of

a QualifyingScheme?

Total QE paid in PRP > earnings

trigger ?

Yes

Yes

No

No

Agedbetween22 andSPA?

Are theyexcluded from Assessment† ?

No statutory duty to enrol

No Yes

Yes

STEP 2

Automatic Enrolment


22nd Birthday in this PRP??

No

New Assessment Date = 22nd Birthday

New Assessment Date = 1st day of next PRP

Yes


Not an eligible jobholder


† A person would be excluded if they:• are not a UK worker; or• are under 16 or aged 75 or over; or• do not need to be assessed yet (e.g. subject to Postponement, Transitional Period or only need to be assessed on Re-enrolment dates).

SPA – State Pension AgeQE – Qualifying Earnings

PRP – Pay Reference Period

In Step 1, given the Assessment Date, determine if the person

needs to be automatically enrolled under the legislation:

If you can answer the question in any ONE of the diamond boxes to reach a yellow lozenge, then

the person does not have to be automatically enrolled under the legislation (yet).

Otherwise, if you have answered all possible questions,

proceed to Step 2.


In Step 2, the employer needs tocarry out automatic enrolment.

The deadline for all activities is one month from the Assessment Date,

but the employee contributions need to be taken on the first payday

on or after the Assessment Date.

Pension scheme contributions will be calculated based on scheme rules

and dated from the Assessment Date to the end of the

Pay Reference Period (PRP)

STEP 1

Assessment Date

STEP 2

Automatic Enrolment

Scheme administrator setsup Active Membership / sends scheme T&Cs

Issue enrolment letter to eligible jobholder

Employee contributions deducted from first pay


STEP 2

Automatic Enrolment

22nd Birthday in this PRP??

No

New Assessment Date = 22nd Birthday


Issue enrolment letter to eligible jobholder

Employee contributions deducted from first pay

Scheme administrator setsup Active Membership / sends scheme T&Cs

No

STEP 1

Assessment Date

Are they anActive Member of

a QualifyingScheme?

Yes

Yes

No

No

Agedbetween22 andSPA?


No Yes

Yes





trigger ?

Are theyexcluded from Assessment† ?



AE process

Assessment results

Payment£

Payroll data£

Payroll instructions

£Pension Scheme

Rules£

Enrolmentletter to worker

Enrolmentinstructions to pension provider


AE process

Assessment results

Payment£

Payroll data£


£Pension Scheme

Rules£



Some payroll software systems can do the assessment

and calculate contributions.


AE process

Assessment results

Payment£

Payroll data£


£Pension Scheme

Rules£



Alternatively, assessment and

contribution calculations may

be done by non-payroll software

(“middleware”)


AE process

Assessment results

Payment£

Payroll data£


£Pension Scheme

Rules£



Middleware, in addition to doing the

assessment and contribution

calculations, may also handle communications

with your pensions scheme(s) and issue letters to workers.

Some pension scheme

providers may offer

“middleware” assessment

services.


AE process

Assessment results

Payment£

Payroll data£


£Pension Scheme

Rules£



However, some middleware systems

may do the assessment and

communications, but expect the employer

to calculate contributions


Yes

Are they anEligible

Jobholder?


No

30th

C

1st

R P0 C

1st

R C

1st

R P2

30th 31st

Yes


trigger ?

No

Assessment Day

Scenario after Postponement

• Pay Reference Period (PRP) runs from 1st to last day of each month;• Assessment date on 31st May is the last day of the Pay Reference Period and is after the May payday on 28th;

• Total Qualifying Earnings will already be known.

If the worker needs to be automatically enrolled:• First deduction needs to made in the next payday - P2 on 28th June;

• Opt Out window will start before first deduction taken;

• Contribution based on 100% of June pensionable pay + 1/31 of May pay

Key: C – Payroll cutoffR – Payroll runP – Payday

Opt Outwindow starts

P1

April May June

Issue letter to worker &set up Active Membership

Automatic Enrolment triggered

28th 28th 28th

Scenario

Postponementto the last day of PRP

Monthly Pay Reference Period (PRP)


Questions to consider

In practice, employers will almost certainly need some software automation.

Do you intend to use your payroll software to assess your workers? Can your payroll provider provide this assessment on your product & version? Or would you need to upgrade your payroll system to do this?

Or, are you going to get another supplier to carry out the assessments (e.g. pension scheme provider or other non-payroll / middleware provider)?

Will all of the software do what you need it to do?

How will you automate staff communications (e.g. a ‘mail merge’ software tool)?

Can your IT / computer systems cope, if you need to run additional software?

Where is your data stored (e.g. on an integrated HR/payroll system or separately)?

How accurate and up to date is your employee data (e.g. NI, address, etc)?

How will these systems work together – what data standards do they support?

Talk to your existing providers and any possible new suppliers about this, well in advance of your staging date.


Questions to ask suppliers

Does the system support the following:

Communications with workers (e.g. does it generate/issue letters or just produce a list of workers that need letters)?

Does it calculate pension contributions and for what definitions of pensionable pay?

Can the software calculate less than a whole period pension contribution (e.g. calculate a pro-rata contribution if a worker is enrolled into the scheme mid-way through the PRP – they may be turning 22 years old)?

Can the software calculate more than a whole period pension contribution (e.g. can you use Postponement to the last day of the PRP)?

What flexibility is there - configuring different Postponement rules for various scenarios?

What data standards are supported / what pension schemes can it connect with?

For middleware assessment software only:

What payroll systems will it support (e.g. data formats used for input & output) ?

If you have more than one AE scheme – and will use a pension provider’s middleware : Will the software assess workers who would be enrolled into another provider’s pension

scheme, if they triggered automatic enrolment?


Planning timeline 08 01 May 2014

Your registration deadline 02 Sep 2014 w

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Who is responsible - develop a plan

To ensure they can comply with their duties, employers are likely to have to consider:

HR issues (e.g. employment & non-employee contracts, employee data accuracy, employee benefits policies, new joiner processes, staff communications, etc);

Pensions issues (e.g. impact on existing pensions schemes & their members, whether to use an existing scheme or a new scheme for automatic enrolment, etc);

Payroll issues (e.g. pay cycles, payroll cut-offs, payroll data accuracy, refunds, contribution calculations, processes which span tax years, etc);

Information Technology (IT) issues: (e.g. computer systems, reliability & networking issues, data standards to allow different software/systems to work together, etc);

Procurement issues: (e.g. any plans to buy new IT systems/software or pensions schemes or upgrade/change existing systems/software, etc);

Financial issues: (e.g. forecasting and budgeting for any impact on costs, etc).

Employers should make sure they involve the right people in their own organisation and in all their suppliers (or potential suppliers).


Pension Schemes



Pension schemes types

• Pension schemes can be either: Defined Contribution (DC) – e.g. ‘money purchase’ Defined Benefit (DB) – e.g. ‘Final Salary’ or ‘Career Average’ Hybrid – a mix of DB and DC

• An Automatic enrolment scheme must be used for:

the automatic enrolment of Eligible Jobholders; 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.


What pension schemes can be used?

Scheme for

Entitled Workers scheme is

registered

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 are not required to make an

employer contribution

Employers will need to contribute

to the pension scheme Employers may

also use a Qualifying Scheme

or an Automatic Enrolment Scheme

for Entitled Workers

† European Economic Area states


Min DC 8% total*

Min DC 5% total*

Minimum DC 2% total contribution*

DC Scheme Minimum Contributions

May2017

April2014

Oct 2018

Oct 2012

Oct 2017

June2015

Large employers

Medium employers

Small/micro employers

New born Employers

* % of Qualifying Earnings

Feb 2018

Minimum DC 1% employer contribution*

Min DC 2% employer*

Min DC 3% employer*

Phase 1 Phase 2 Phase 3


Review your pensions

Employers should consider what they need to do about their pension schemes. For your existing pensions scheme (if you have one):

Are there any existing active members (e.g. members currently contributing)? Could any of the existing members be (or become) Eligible Jobholders? Does the scheme satisfy the minimum criteria?

See: www.tpr.gov.uk/employers/explaining-qualifying-schemes.aspx Do you want to use this scheme as an automatic enrolment scheme? ...

... your existing scheme provider may not allow it be made an automatic enrolment scheme (e.g. the scheme provider needs to issue Opt Out forms).

If you need to or want to use a new scheme for automatic enrolment: How will you choose the scheme provider, scheme and default fund?

See: www.tpr.gov.uk/docs/selecting-a-good-automatic-enrolment-scheme.pdf Some scheme providers may not wish to offer you a pension scheme. Providers may be at full capacity – or have long waiting times.

NEST are obliged to offer you a pension scheme ... but don’t leave it too late!


Choosing a good quality scheme

Scheme simplicityWorkers should be able to understand the scheme

(but if they don’t make any decisions they are still

protected).Investment

optionsIs the default

investment strategy suitable?

Managing Investments

Know who is responsible for

monitoring these default strategies.

Value for moneyAre the costs and

charges competitive and good value for the services provided

Pension ProviderThe skills,

knowledge and processes of those

running your pension scheme

are vital.

CommunicationsThe scheme provider should regularly send

good quality communications to

members

What makes a good quality

scheme?

DM2594051 v1A This presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way

Useful Links• Main steps to prepare for automatic enrolment

www.tpr.gov.uk/employers/main-steps.aspx

• Detailed guides for Employers (and pension professionals):

www.tpr.gov.uk/pensions-reform/detailed-guidance.aspx

• Planning for Automatic Enrolment www.tpr.gov.uk/employers/planning-for-automatic-enrolment.aspx

• What information do employers need to provide to their workers? www.tpr.gov.uk/docs/Pensions-reform-resource-information-to-workers.pdf

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

• Information about Registration and employer checklist: www.thepensionsregulator.gov.uk/employers/registration.aspx www.tpr.gov.uk/docs/automatic-enrolment-online-registration-checklist.pdf

• Logo for Automatic Enrolment (“3 coins”): (choose “I only require automatic enrolment assets”)

https://communicationcentre.dwp.gov.uk/dwp/index.php

• Detailed guides for Software Developers:www.tpr.gov/employers/software-developers.aspx

DM2594051 v1AThis presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way

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Auto Enrolment: Systems & Schemes

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