Simplifying Auto-EnrolmentFor Small Business

www.workplacepensionsdirect.co.uk

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Quarterly forecast of employers due to comply with AE

What employers will need to do to comply

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presentation remains the

property of The Pensions

Regulator. The content of these

slides should not be altered in any w ay.

www.workplacepensionsdirect.co.uk

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Automatic enrolment legislation gives employers a duty to:

automatically enrol all staff who are eligible

other staff who have the right to ask to opt in or join a pension

communicate to their staff

manage opt outs and promptly refund contributions

every three years, automatically re-enrol staff who are eligible

complete a declaration of compliance with the regulator

keep records

maintain payments of pension contributions

The employee safeguards mean that employers:

must not induce staff to opt out or cease membership of a pension, and

must not indicate, when recruiting new staff, that the decision to employ

them will be influenced by whether or not they intend to opt out.

Overview of legal duties and safeguards

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Who is excluded?

Certain people are exempted from the AE duties, including:

• directors not working under an employment contract;

• a director who is working under an employment contract for a company with

only one employee - but only for the work they carry out for that company;

• office-holders who are not considered workers (eg non-executive directors, trustees, elected members) - but they are only excluded for the activities they

carry out as an office holder;

• the (truly) self-employed.

However, employers may choose whether or not to automatically enrol

certain people who trigger automatic enrolment, including individuals* who:• are directors working under an employment contract (from 6 April 2016);

• are LLP partners, but are not ‘salaried members’ under HMRC tax rules

(duties continue to apply in full to ‘salaried members’);

• are in their notice period;

• have previously ceased active membership of a qualifying pension;• have HMRC tax protected status for their pension savings;

• have received a winding-up lump sum payment from a pension trust.

* See additional slides on “Exceptions” for more details

© Workplace Pensions Direct 2014Auto-enrolment – An Employer’s Perspective, slide number 6

Who needs to be auto enrolled?

Entitled – Right to join a pension scheme

Employer doesn’t need to contribute

£0 -

Earnings

Age

16 22 75SPA65 - 68

Eligible – must be auto-enrolled

Employer must contribute

Non-Eligible – Right to join

Employer must contribute

£10,000 –£833 mth

£192 wk

£5,876 –£490 mth

£113 wk

Note: Employers can class Directors as Non-Eligible

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Tell TPR if you are not an employer

• If an employer does not believe they are an employer because:

– it is a sole director company, with no other staff

– it is a company with more than one director, where no more than one

director has an employment contract (and there are no other staff)

– the company has ceased trading

– the company has gone into liquidation or has been dissolved

– they no longer employ people in their home (eg cleaners, nannies,

personal care assistants).

Tell TPR at: https://automation.thepensionsregulator.gov.uk/notanemployer

• The (Duties Checker) tool is not for employers who:

– have no staff to enrol on their staging date, or

– for companies in administration or in non-terminal insolvency

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Knowing what you are doing can save you £1,000 per employee pa*:

• Definition of Earnings

• Phasing

• Postponement

• Salary exchange

• Net Pay vs Deduction at Source

• Employer Pension Charges

• Employee Pension Charges £1,000

Available Scheme Design Cost Savings

* Based on National Average Earnings

© Workplace Pensions Direct 2014Auto-enrolment – An Employer’s Perspective, slide number 9

PENSIONABLE

Employer defined

PENSIONABLE

Pensionable Earnings?

PENSIONABLE

At least equal to

basic pay

£0 -

TOTAL• Basic plus

• Bonuses

• Overtime

• Commission• Allowances

• Car

• Clothing

• Meal

• Attendance• Shift

• Relocation

BASIC• Before

deductions

• Holiday pay

• Maternity pay• Paternity pay

• Adoption pay

• Sick pay

BANDED

‘QUALIFYING’

Based on total

earnings

£45,000 –£3,750 mth£815 wk

£5,876 –£490 mth£113 wk

Certification may be required

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Min DC

8% total*

Min DC

5% total*

Minimum DC 2% total contribution*

DC scheme minimum contributions

April 6th

2019

April 6th

2018

*% of qualifying earnings

Minimum DC 1% employer contribution*

Min DC 2%

employer*

Min DC 3%

employer*

Phase 1 Phase 2 Phase 3

Oct 2012 May 2017April 2014 June 2015

Large

employersMedium

employersSmall/micro

employers

New

employers

Feb 2018

© Workplace Pensions Direct 2014Auto-enrolment – An Employer’s Perspective, slide number 11

Postponement

Staging Date

DEFER3 months max

3 6 9 12

£833 mth

• Staging Date

• Probationary period

• High staff turnover

• Earnings spike

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The FCA regulations and choosing a pension

• Employers have the responsibility to choose a pension (or pensions) for

automatic enrolment.

• Investment advice to an employer (in their capacity as an employer) is not a

regulated activity.

• Investment advice to an individual is regulated and should only be provided if an adviser has the appropriate Financial Conduct Authority authorisation.

• It may not always be easy to tell whether an employer is seeking advice as

an employer or as an individual (eg where the client might join the pension

themselves).

• Consider the ethical standards set by your professional body and the scope of your professional indemnity insurance.

• You may like to specify in the letter of engagement that any advice to an

employer is provided to them in their capacity as an employer and not as an

individual.

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Choosing a pension

• The employer must have an automatic enrolment pension scheme in place by

their staging date if they have someone to automatically enrol on this date.

• If there is no one who needs to be automatically enrolled then a pension

scheme does not need to be set up ...

– but it may be useful to decide which pension would be used if someone asks to join or meets the criteria to be automatically enrolled.

• The employer has the right to select the pension and can choose to decline

any employee’s request to contribute to a different pension scheme.

• If the employer wants to use an existing pension, they need to check that it is

qualifying and can be used. For more information go to www.tpr.gov.uk/what-to-consider-when-choosing-a-scheme.aspx

• On our website, we list providers that have said they have pensions available

to all small employers looking for a pension for automatic enrolment, including:

– Pensions regulated by the Financial Conduct Authority (FCA)

– Independently reviewed master trust pensions

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• It is the employer’s responsibility to choose a pension scheme for their

workers.

• Employers should consider what features are important for their workers,

for example:

– charges (there is an annual 0.75% charge cap on the default fund)

– choice of funds other than the default strategy (eg Sharia,ethical)

– options at retirement and/or from age 55 (eg drawdown options)

– whether they provide ‘one pot per member’ and rules on transfers

– how tax relief is applied (eg through payroll or by the pension provider)

– online member services

– member communications (may be available in multiple languages)

• For help on how to select a good qualifying pension, please see:

www.tpr.gov.uk/choosing-a-pension-scheme.aspx

Choosing a new pension - factors to consider

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Tax relief: two mechanisms

• Many small employers and their advisers may not realise that there are two

ways that the tax relief on staff members’ pension contribution can be applied:

– Net Pay Arrangement (through payroll)

– Relief at Source (‘not Net Pay Arrangement’ – by pension provider)

• Many pension schemes only support one tax relief method, although some pension providers allow the employer to choose either method.

• It is vital to understand which system your clients are going to use, to avoid

miscalculating the contributions and tax due.

• For more information look at the ‘tax relief’ section at:

www.tpr.gov.uk/what-to-consider-when-choosing-a-scheme.aspx

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Net Pay Arrangement (through payroll)

For this tax relief mechanism:

– no tax is payable on the member of staff’s pension contributions, so the

employer deducts 100% of the contributions due, and

– pays them to the pension provider (ie gross of tax).

• If the member earns below their income tax allowance (personal allowance is £11,000 in 2016/17), the member will not get any tax relief benefit.

• Higher rate taxpayers may prefer this method, as they would immediately get

full tax relief through payroll without having to complete an HMRC Self

Assessment tax return.

• Contract based pensions, such as Group Personal Pensions (GPPs) may not use this mechanism.

• Some, but not all, master trust pensions calculate tax relief this way.

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Relief at Source (‘not Net Pay Arrangement’)

For this tax relief mechanism:

– only 80% of the calculated contribution is deducted because ...

– ... the member’s pension contribution will be taken after tax has been

deducted, and

– the pension provider claims 20% tax back from HM Revenue & Customs (HMRC) and adds it to their pension pot.

• Higher rate taxpayers will have to complete an HMRC Self Assessment tax

return in order to reclaim the rest of the tax paid on their contributions.

• Staff who earn no more than their income tax personal allowance (£11,000 a

year in 2016/17) do not pay tax, but they would still get the 20% tax relief (even though they haven’t paid any income tax on their contributions).

• We suggest that employers with staff who do not pay income tax,

choose a pension which operates Relief at source.

• Group Personal Pensions, the government scheme (NEST) and some master

trust pensions usually calculate tax relief this way.

© Workplace Pensions Direct 2014Auto-enrolment – An Employer’s Perspective, slide number 18

Communication

EMPLOYER PENSION SCHEME

General Awareness

Statutory Notice

• General

• Pre-existing pension

• Eligible

• Non-Eligible

• Entitled

• Reminder

• Re-enrolment

Member Pack

Opt-out Notice

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Declaration of compliance

• After staging, employers must complete a declaration of compliance

– and it must be completed within five months of the staging date and

– within five months of the 3rd anniversary of the staging date (or previous

automatic re-enrolment date) - this change was effective 6 April 2016.

• Employers may receive a penalty fine if they do not complete their declaration on time.

• Employers will need to provide certain details, for example:

– which pension schemes were used to comply with the duties,

– (after cyclical re-enrolment only) their chosen automatic re-enrolment date,

– 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.

• You can also upload a file with multiple employers’ declarations.

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Cyclical re-enrolment

• Cyclical re-enrolment occurs around every 3 years.

• Employer can choose a re-enrolment date which can be any day, up to 3 months

before or after the third anniversary of their staging date, or previous re-enrolment

date (eg an employer who staged on 1 Oct 2013 may choose any day between 1

July and 31 Dec 2016).

• On the re-enrolment date, workers will need to be assessed and (if an eligible

worker) automatically re-enrolled† if these conditions apply:

– they are not already an active member of a qualifying scheme; and

– they are not being monitored every pay period (ie they have previously been

automatically enrolled or assessed as an eligible jobholder whilst an active

member of a qualifying scheme).

• Postponement cannot be used at re-enrolment.

† Exceptions may be applicable

(eg if in notice period or have tax protection)

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The Pension Regulations

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Which workers should be considered?

• Fixed term, ‘casual’, zero hours contract workers and non-permanent workers

should be assessed under the same criteria as other workers.

Postponement gives employers flexibility (eg for short-term workers)

• but workers must be issued a postponement notice, within six weeks and a day

from the start of postponement - or postponement cannot be used; and

• the staging date and declaration of compliance deadline remain unchanged.

Opting-in and out

• All eligible workers must be automatically enrolled before they can exercise their right to opt-out.

• Upon receipt of a valid Opt-in notice, employers must take immediate steps to

enrol them into a pension, as they may need to start taking deductions from the next pay day.

Common compliance issues among employers

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TPR’s approach is an employer should take reasonable steps to put the worker

back in the position they would have been in if the breach had not occurred

- and should not profit from their mistake.

So, if an employer fails to enrol a worker from their staging date they should:

• enrol them, backdated to the original date, and

• ensure backdated pension contributions are paid.

Employers should contact us if they are experiencing difficulties.

If the employer has not completed the actions and remedies required by a

compliance notice within 3 months of the specified deadline, TPR has the power to:

• require the employer to pay both their own and employee contributions, and

• require interest to be added to outstanding contributions, and

• require the employer to give the employee the option to pay their backdated

contributions (over a reasonable timeframe).

What if an employer makes a mistake?

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Compliance and enforcement

• Over 95% of the first small employers required to put their staff into a

workplace pension have now complied with the law.

© Workplace Pensions Direct 2014Auto-enrolment – An Employer’s Perspective, slide number 25

© Workplace Pensions Direct 2014Auto-enrolment – An Employer’s Perspective, slide number 26

© Workplace Pensions Direct 2014Auto-enrolment – An Employer’s Perspective, slide number 28

Service Offered/ Planned by IFAs?

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Are small and micro employers getting the message?

• In a September survey, over 50% of

micro employers staging in 2016 had

not started making plans for automatic

enrolment.

• Those in early stages of AE

preparation expect it to take longest,

while those yet to start expect it to take

the least time.

• Many will leave their preparations to

the last minute.

© Workplace Pensions Direct 2014Auto-enrolment – An Employer’s Perspective, slide number 30

Why Workplace Pensions Direct?

© Workplace Pensions Direct 2014Auto-enrolment – An Employer’s Perspective, slide number 31

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