Pensions Auto -Enrolment, B&CE and Contracting

Presentation dated: 3 rd July 2013

Agenda

� Auto-Enrolment – A summary

� Building & Civil Engineering Pension Scheme – Easybuild

� Auto-Enrolment – How it works

� The Effects of Auto-Enrolment – Hanson’s proposals

� Salary Sacrifice

Auto-Enrolment, a change in the law affecting every one

� To help people save more for their retirement, the government requires employers to enrol their workers into a workplace pension scheme. This applies to those workers who aren’t already in one, and who

� earn over £9,440 a year (£787 a month or £182 per week); and� are aged 22 or over; and � are under State Pension age.

� Hanson UK is enrolling these workers into our workplace pension scheme on 1 August 2013.

Why is this happening

� The government’s aim is to get more people to have another income, on top of the State Pension, when they come to retire. The full basic State Pension in 2013-14 is £110.15 a week for a single person.

� Employers are enrolling their workers automatically into a scheme to make it easier for people to start saving.

Building & Civil Engineering Pension Scheme

Easybuild

Easybuild Summary

� Early joiners – Just a Company contribution of £5 per week

� More recently – Employee had to contribute � Minimum Employee contribution of £5 per week� Company matches 100%� Employee can increase contribution� Company matches at 100%, up to maximum of £10 per week

� Life Cover is part of the scheme:� Life Cover of £25,000 on death� Accidental Death Benefit of an additional £25,000

� Employee Accident Cover:� From £25,000 for loss of both eyes, or a hand, or foot, or arm,

or leg� To £800 for loss of finger

Pension Membership in Contracting

� 61 are currently members of Hanson Industrial Pension Scheme (HIPS) … of these:

� 47 are members of Easybuild� 1 is not a member of Easy Build

� Of the 45 employees not in HIPS:� 39 are members of Easybuild� 2 are not members of Easybuild

� WRA (Section 21) specifies contributions to Easybuild, but this is not a qualifying scheme under AE legislation …

� B&CE have started a new AE qualifying scheme - “The People’s Pension”

� WRA – 21.4 allows an alternative scheme to be used

� HIPS is a qualifying scheme under the Auto-Enrolment legislation

Auto -Enrolment – How it works

If you ARE a current member of HIPS

� You will not be automatically enrolled as you are a lready in the pension

� Hanson Industrial Pension Scheme is a qualifying scheme for purposes of Auto-Enrolment. It exceeds the Government’s new standards.

But Note:If an employee is under 75, works or usually works in the UK, and earns over £5,668 a year (the amount set by the government for this):

� We must by law continue to maintain your membership of a scheme that meets certain government standards; and

� If your membership of such a scheme ends (and it is not because of something you do or fail to do), we must by law put you into another scheme that meets government standards straightaway.

If you are NOT already a member of HIPS

� If you are NOT already in our workplace pension scheme on 1 August 2013, what happens depends on how old you are and how much you are earning on that date.

There are three Scenarios

� Eligible Worker - On that date you are aged 22 or over, under State Pension age, work or usually work in the UK, and earn more than £9,440 a year (£787 a month or £182 per week).

� Entitled Worker - On that date you are aged under 22 years, or over State Pension age (but under 75), or earn more than £5,668 (£473 a month or £109 per week) but not more than £9,440 a year (£787 a month or £182 per week)

� Non Entitled Worker - On that date you are under 75 and earn £5,668 or less a year (£473 or less a month OR £109 or less a week)

Eligible Workers

If on that date you are aged 22 or over, under State Pension age, work or usually work in the UK, and earn more than £9,440 a year (£787 a month or £182 per week).

� We will enrol you into our pension scheme on 1 Augu st 2013. You don’t have to do anything – it will happen automatic ally.

� You can choose to opt out of the scheme if you want to, but if you stay in you will have your own pension which you get when you retire;

� Hanson UK and you will pay into it every month;� The government will also contribute through tax relief;� Your pension belongs to you, even if you leave us in the future;� You have the right to join the scheme before 1 August 2013 if you

want to.

Entitled Worker

If on that date you are aged under 22 years, or over State Pension age (but under 75), or earn more than £5,668 (£473 a month or £109 per week) but not more than £9,440 a year (£787 a month or £182 per week)

� We will NOT be automatically enrolling you into the pension scheme.

� This is because you do not meet the criteria set by the government.

� However, you have the right to join the scheme if you want to. Both you and Hanson UK would pay into it.

Non-Entitled Worker

If on that date you are under 75 and earn £5,668 or less a year (£473 or less a month OR £109 or less a week)

� We will NOT be automatically enrolling you into our workplace pension scheme.

� This is because you do not meet the criteria set by the government.

� However, if you ask us to do so, we will enrol you into a pension scheme. Both you and Hanson UK would pay into it.

HIPS – The Auto-Enrolment Pension Scheme

The pension scheme being used is Hanson Industrial Pension Scheme. The scheme is an occupational pension scheme run by a Trustee Board on behalf of the pension members and administered by Capita Employee Benefits.

� HIPS had 3 benefit levels. With Auto-Enrolment we w ill be adding a 4th. The original 3 levels will remain for “Enhan ced Members”, adding in the “Auto-Enrolment” level, all paying in a different percentage of Pensionable Pay.

EmployeeContribution

Employer Contribution

Life Cover4 times salary

Auto Enrolment 1% 1% No

Enhanced Member 3% 5% Yes

Enhanced Member 4% 7.5% Yes

Enhanced Member 5% 10% Yes

Postponements and Waiting Periods

� Hanson is “Postponing” Auto Enrolment actions by three months. Therefore Auto Enrolment actions will be delayed until 3 months after the Staging Date or Joining Date.

� The “Waiting Period” of 6 months employment for eligibility to “Enhanced Membership”, will continue.

� Life Cover will still be effective from the time a full application form is received.

Note: These rules are subject to various anomalies for employees who are currently within 6 months of joining or join between now and 1 August 2013. These anomalies are caused by circumstances around the transition and allow a few of these employees to have enhanced benefits earlier than will be standard.

Postponements and Waiting Periods - Examples

� Example 1: New Joiner completes application form for enhanced membership and sends it in after one month of employment:� At one month the receive Life Cover� At one month they receive 1% / 1% contributions� At six months they receive enhanced contributions

� Example 2: New Joiner completes application form for enhanced membership and sends it in after four months of employment:� At three months they are Auto Enrolled and receive 1% / 1%

contributions� At four months they receive Life Cover� At six months they receive enhanced contributions

The Effects of Auto -Enrolment …

Hanson’s proposals

The Complexities of Auto-Enrolment and B&CE

� Easybuild is closing to new members and opening a new qualifying scheme called “The People’s Pension”.

� Hanson and B&CE have discussed this change at length.

� The complexity of the AE legislation and the contribution rules within The People’s Pension”, make it impossible for the Hanson payroll system to complete the AE calculation required by the legislation.

� A “middleware” solution was considered, via B&CE, to overcome this. But the multiple payrolls and pay dates make this impractical for the payroll department.

Hanson’s Proposal for Complying with Auto-Enrolment

� Hanson will select HIPS as its qualifying pension arrangement� Company contributions to B&CE Easybuild will cease 1 August

2013� Hanson will not be utilising the B&CE “People Pension” � HIPS benefits are significantly greater than “The People’s

Pension”: o Company contributions of between 5% and 10% of

pensionable salaryo 150% matching

� HIPS death benefit of 4x Pensionable Salary is a significant additional benefit:

� Generally 5x more than WRA requirements

� Pension and Death benefit increases are proposed to be balanced out by removal of Accident Benefit Scheme.

Pension Benefits Already Accrued in B&CE

� If an employee no longer has contributions going into Easybuild, they will become a “deferred” member of that scheme.

� The value of the Easybuild pension pot will continue to grow and pension benefits can be withdrawn in accordance with the normal rules of the scheme.

What do all employees have to do

� NOTHING until 1st August 2013

� If you want to opt out of the HIPS pension scheme – after 1st

August obtain an Opt Out form from Capita and send to Payroll

� If you want to stay in the pension scheme - you don’t have to do anything.

� Your personal details will be passed to Capita Employee Benefits

� Your pension will start building from the first payday after 1 August 2013, when the first pension payments will be made.

� You will be able to see this on your payslip

Sources of Information

� Announcements already made – broad indications only

� Letters from Company – detailed information� 24th May 2013� End June� End July

� Websites – Unite and external site� www.hanson.com/uk/autoenrolment� www.bandce.co.uk

� Scheme Booklet and investment information

� Key contacts :� Capita Employee Benefits� Payroll� HR Services

Proposed salary exchange scheme for pension contributions31st May 2013

What is Salary Sacrifice?

� Salary sacrifice is an HMRC approved scheme aimed to encourage better employee benefits in return for National Insurance savings

� It requires a contractual agreement between you and Hanson to exchange part of your salary in return for a non-cash benefit, in this case an additional employer pension contribution.

� You sacrifice salary equivalent to the level of your employee pension contribution, in exchange for which the employer makes an equivalent additional employer pension contribution.

� This has the effect of reducing both the employee and the employer’s National Insurance (NI) contributions (as these are levied on your pay)

� It has an overall neutral effect on income tax.

� The employee’s NI saving takes the form of increased take home pay

Example: Gross salary of £24,000

Current Basis Salary Sacrifice Difference

Salary £24,000 £23,280(i.e. £24,000 less £720)

-£720

Income Tax £3,179.00 £3,035.00 -£144

National Insurance £1,967.40 £1,881.00 -£86

Annual Net Pension Contribution £576.00 £0.00 -£576

Total Deductions £5,722.40 £4,916.00 -£806

Net Annual Pay £18,277.60 £18,364.00 £86

Net Monthly Pay £1,523.13 £1,530.33 £7

Gross Employee Pension Contribution £720.00 £0.00 -£720

Normal Hanson Pension Contribution £1,200.00 £1,200.0 0 £0

Hanson’s Salary Sacrifice Pension Contribution £0.0 0 £720.00 £720

Total Pension Contribution £1,920.00 £1,920.00 £0

… and a 3% Employee pension contribution and a 5% Employer pension contribution

Why Change now?

� We have an obligation to auto-enrol all non-pension scheme members into a scheme by 1st August at a contribution rate of 1% employee and 1% employer

� The proposed salary exchange scheme will mitigate the increased costs for the Company by savings NIC on employee pension contributions

� Next steps� Company engage employment tax consultants� Finalise scheme arrangement� HMRC clearance� Inform and give notice to employees to change terms and conditions� Aiming for 1st October implementation