Ken Tymms Industry liaison managerThe Pensions Regulator 15 July 2015 Automatic enrolmentSelf Directed Support Scotland The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.
Topics Why is automatic enrolment being introduced? What employers need to do Staging dates and overall timetable Who are your workers? Worker categories and the duties and rights for pension scheme enrolment Communicating with workers Qualifying earnings and the automatic enrolment processes Postponement Opt-ins and Opt-outs Monitoring worker status and re-enrolment Keeping records Declaration of compliance
Why is automatic enrolment being introduced? • 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. 7 million people are under-saving
Overview of legal duties and safeguards Automatic enrolment legislation gives employersa duty to: • automatically enrol all eligible jobholders • communicateto workers providing timely and appropriate information • allow non-eligible jobholders to opt-inand entitled workers to join • manage opt-outs within the opt-out period and promptlyrefundcontributions • automatically re-enroleligible jobholders every three years • complete declaration of compliance with the Regulator • keep records • 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 therecruitmentprocess
Staging • The employer duties apply to each employer fromtheir staging date: • the duties apply toallof the employer’s workers from that date. • An employer’s staging date will be based on the PAYE scheme/s that were being used on 1 April 2012 • any subsequent change in PAYE size or usage has noeffect on the staging date. • However, new employers* will go last, from May 2017. Do not assume your clients know their staging date- use our tool *Employers that did not exist (or werenot using a PAYE) as at 1 April 2012. Large employers Medium employers Small/micro employers New*employers Oct 2012 May 2017 June 2015 Feb 2018 April 2014
Staging profile Q1 - April to June Q2 - July to Sept Q3 - Oct to Dec Q4 - Jan to March
Who are your workers? A person is likely to be subject to the automatic enrolment legislation if they are: aged 16 to 74 (inclusive), and work or ordinarily work in the UK*, and it does not matter if they are full or part-time, permanent or temporary. There may be other people who will also be included: overseas workers, who are considered ordinarily working in the UK. Workers will include: employees, and people who are not employees (excluding directors) who are personal services workers. * the Channel Isles and the Isle of Man are outside the UK
Are they a personal services worker? • The employer needs to judge whether or not an individual (who is not a director)with a contract to perform work or services personallyis undertaking the work as part of their own business. • Does the employer: • have control over an individual’s method of work (eg hours worked)? • provide any employee benefits? • bear all the significant financial risks in carrying out the work (eg the worker is not financially responsible for their faulty work)? • provide what is required for the individual to carry out the work (eg tools)? • If most or all of the above are true, then it would be reasonable to consider that they are not undertaking the work as part of their own business – and they are a personal services worker. • The list above is not exhaustive and an employer must take into account all relevant considerations and make a reasonable judgement.
Who is excluded? • Exclusions from automatic enrolment duties include: • some office-holderswho are not considered workers, (eg non-executive director, trustee or elected member), but they are only excluded for the activities they carry out as an office holder • serving members of the military are not workers • a company with only one employee, if that employee is also a director of that company (but only for the work they carry out for that company). • From 1 April 2015, new exceptions were introduced covering workers*: • in their notice period • who have previously ceased active membership of a qualifying pension • with HMRC tax protected status for their pension savings • who have received a pension winding-up lump sum payment. • *see additional slides for more detail
Who is the worker’s employer? • For a worker who works under a contract of employment (an employee) or who is a personal services worker directly contracted to perform work for the company who pays them: • the employer will be the legal entity named in the contract • Otherwise: • for a worker who is supplied by an agent to a third party, to perform work personally, under a contract or arrangement between the agent and the third party, then: • the agent or third party will be the agency worker’s employer, depending on which is responsible for paying the worker • or, if it cannot be determined who is responsible for paying the worker, then whichever actually pays the worker will be considered as their employer.
Worker categories Non-eligible jobholders can Opt-in to an automatic enrolment pension scheme Entitled worker Can request to joina pension scheme Up to £5,824**pa Over £5,824 pa and up to £10,000**pa NonNon-eligible jobholder -Eligible Jobholder Eligible jobholder Non-eligible jobholder Non-eligible jobholder More than £10,000**pa Employer must automatically enroleligible jobholders into an automatic enrolment pension scheme * SPA = State Pension Age ** Figures for 2015/16
Thresholds v Pay Reference Periods (PRP) 2015-16 †For other PRP durations, multiply the number of weeks in the PRP by the weekly amount (eg £192.00) or number of months by the monthly amount (eg £833.00) etc - or pro-rata if not an exact multiple of any of the above. N.B. The Secretary of State will review these figures each tax year.
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 mustbe 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 slide on ‘Monitoring eligibility’) assess someworkers again every three years (see slide on ‘Re-enrolment’).
Monitoring eligibility for automatic enrolment After the staging date, employers will have to assess, every pay period, any worker who: is not an active member of a qualifying pension scheme, and: has not previously been automatically enrolled (or assessed as an eligible jobholder whilst an active member of a qualifying schemeϮ). Workers assessed as an eligible jobholder would then need to automatically enrolled (or postponed). Those workers that do not fall into the above category should be left until the next re-enrolment date (see slide on cyclical re-enrolment). ϮA worker who has simultaneously been an eligible jobholder and an active member of a qualifying scheme since: the employer’s staging date; or the date they started work for the employer; or the last day of postponement.
Check suitability of payroll and IT systems What software will you use to carry out: assessment enrolment communications, and calculation of pension contributions. This is likely to require data held by payroll and HR systems. Choices: payroll software, and/or non-payroll software or services (can be referred to as “middleware”) this may be offered by the pension scheme provider.
Pensionable earnings Pensionable earnings can be based on qualifying earnings OR another definition (eg basic pay). When qualifying earnings are used to determine pensionable pay: pension contributions are determined by the rules of the scheme, and will be based on banded earnings between the lower earnings threshold and upper earnings limit (currently £5,824*pa and £42,385*pa). If pensionable earnings are not based on qualifying earnings, the employer can self certify** ifthe scheme meets certain minimum criteria: ‘Set 1’ - if basic pay from £1 is pensionable, or ‘Set 2’ - if at least 85% of total pay (scheme average) is pensionable, or ‘Set 3’ - if 100% of total pay is pensionable. • * Pro-rata of annual amount used in each Pay Reference Period. These figures are for 2015-2016. The Secretary of State will review this amount each tax year. • ** For further details see the DWP guidance document: www.gov.uk/government/uploads/system/uploads/attachment_data/file/307083/money-purchase-schemes-guidance.pdf
DC scheme minimum contributions Phase 3 Phase 1 Phase 2 Min DC 8% total* Min DC 5% total* *% of qualifying earnings Min DC 3% employer* Minimum DC 2% total contribution* Min DC 2% employer* Large employers Medium employers Newemployers Small/micro employers Minimum DC 1% employer contribution* Feb 2018 Oct 2017 May 2017 June 2015 April 2014 Oct 2012 Oct 2018
What pension schemes can be used? Must be used for automatic enrolment and ‘Opt-ins’ Workers already active members of a qualifying scheme do not need to be automatically enrolled Automatic enrolment scheme Employers will need to contribute to the pension scheme • Qualifying scheme • must be tax registered: • and meet minimum criteria Employers may also use a qualifying scheme or an automatic enrolment scheme for entitled workers • Scheme forentitled workers • scheme is registered • must be registered in the UK or EEA* • must have no barrier to automatic enrolment • must be a qualifying scheme Employers are notrequired to make an employer contribution *European Economic Area states
Can clients use an existing pension scheme? If clients have an existing scheme, it may not be suitable for automatic enrolment. To be a qualifying scheme: the contributions due must be at or above the minimum criteria if it is a personal or GPP contract-based scheme, it is likely to need a jobholder agreement for each active member. If it is not a qualifying scheme, it may be possible to change the scheme rules to make it qualifying. Active members of a pension which is not qualifying would need to be assessed and, if eligible, automatically enrolled into another pension. If they want to use a qualifying scheme to automatically enrol their workers: the pension must have no barrier to automatic enrolment (eg default fund). The existing pension provider may not allow it to be made a qualifying scheme or an automatic enrolment scheme - check with the pension provider.
Choosing a new pension - how to find one How will you find a pension if you need or want to use anewscheme? For further information and a list of pension providers see: The National Association of Pension Funds (NAPF)* The Association of British Insurers(ABI)* Pension providers: not all pension providers may offer you a pension scheme some providers may be at full capacity or have long waiting times you should investigate more than one pension provider at a time information about their pensions can typically be found on their websites National Employment Savings Trust (NEST)* is a pension scheme that all employers can use to meet their duties but don’t leave it too late. * These can be found on our Useful links slide
Choosing a new pension - factors to consider • 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/employers/setting-up-a-pension-scheme.aspx
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. Each worker can be postponed from one day up to maximum of three months. The employer must notify any postponed worker within six weeks and a day 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, and for those workers not eligible, monitor them each future pay period. Postponement does not change or delay the staging date
Opting-in and joining Entitled workers can request to join a scheme at any time, including during postponement. Jobholders can Opt-in at any time, including during postponement. However, workers will not necessarily know whether they are jobholders or entitled workers and this could vary over time. All requests (whether an Opt-in or join request) are treated the same way. On receipt of any request to Opt-in or join a pension from a worker, employers need to: assess the worker, to see if they are a jobholder or entitled worker, then enrol jobholders into an automatic enrolment scheme, and enrol entitled workers into a scheme of the employer’s choice. A jobholder must not be required to carry out any further action to achieve active membership (eg the pension scheme should have a default fund).
‘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 notgive 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 gives 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). A worker who has opted out does not need to be assessed again until the employer’s next re-enrolment date (occurs approx every 3 years).
Worker information requirements There are 4 occasions when communications are needed: enrolment postponement (one letter) worker’s right to opt-in/join a scheme, and when applying the transitional period. You no longer need to distinguish between an entitled worker and a non eligible jobholder for communication purposes - or know that they have changed category if they are not an eligible jobholder. And these letters are no longer required: the entitled worker and non eligible jobholder tailored letters the ‘already member of qualifying pension scheme’ letter. Note: Employers can still use the ‘old’ template letters if they wish to.
Communicating to workers • Employers will need to communicate* totheir workers (unless they are already in a qualifying pension scheme). • Employers need to inform workers of their rights and whether they are being automatically enrolled or postponed. • The deadline for most communications is within 6 weeks*. • 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. • www.tpr.gov.uk/employers/write-to-your-staff.aspx • * Postponement 6 weeks from the day after the assessment date
Cyclical re-enrolment The re-enrolment date will occur approximately every three years from the employer’s staging date. An employer may choose their re-enrolment date to be any day, up to 3 months before or after, the third anniversary of their staging date or previous re-enrolment date. On the re-enrolment date, workers will need to be assessed and (if an eligible jobholder)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); and they opted-out or ceased membership of a qualifying scheme more than 12 monthsago - or if they opted-out or ceased membership of a qualifying scheme within the previous 12 months - the employer chooses to automatically re-enrol them (ie the employer can choose not to do this). Postponement cannot be usedat 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 ‘keep records’
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 two months after every re-enrolment date 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, 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.
Useful tools Create an action plan and add important dates to calendar:www.tpr.gov.uk/employers/planning-for-automatic-enrolment.aspx Nominate a contact:https://automation.thepensionsregulator.gov.uk/Nomination Staging date tools: finding out a staging date www.tpr.gov.uk/employers/tools/staging-date.aspx staging date for a “new” company set up after 1 April 2012 www.tpr.gov.uk/employers/exceptions.aspx bringing staging date forward www.autoenrol.tpr.gov.uk getting bulk staging dates and exporting bulk declaration of compliance AEDataRequest@thepensionsregulator.gov.uk
Useful tools Find a letter code online:https://automation.thepensionsregulator.gov.uk/LetterCode Tell us if you are not an employer:https://automation.thepensionsregulator.gov.uk/notanemployer Work out pension contributions:www.tpr.gov.uk/employers/employer-contributions.aspx Pay your fine online:www.tpr.gov.uk/employers/what-happens-if-i-dont-comply.aspx
Useful links Event presentations:www.tpr.gov.uk/doc-library/ae-presentations.aspx The essential guide to automatic enrolment:www.tpr.gov.uk/employers/e-brochure/index.html Ourdetailed guides for employers and pension professionals:www.tpr.gov.uk/pensions-reform/detailed-guidance.aspx Information about declaration of compliance:www.tpr.gov.uk/declaration Lettertemplates for employers:www.tpr.gov.uk/employers/letter-templates-for-employers.aspx ‘We’re all in’ poster available to download on our website (you can add your company name and logo) at www.tpr.gov.uk/employers/raising-awareness-about-automatic-enrolment.aspx
Useful links 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.ukwww.vouchedfor.co.uk Friends of Automatic Enrolment:www.cipp.org.uk/en/Pensions/friends-of-automatic-enrolment/ The Pensions Regulator: www.tpr.gov.uk/docs/selecting-a-good-automatic-enrolment-scheme.pdfwww.tpr.gov.uk/docs/introduction-code-13.pdf
Useful links - webinars and videos Director exemptions explained:www.tpr.gov.uk/ILT-director-video Automatic enrolment – for business advisers.www.tpr.gov.uk/press/webinar-automatic-enrolment-for-business-advisers.aspx Automatic enrolment question time.www.tpr.gov.uk/press/webinar-automatic-enrolment-question-time.aspx Automatic enrolment declaration of compliance.www.tpr.gov.uk/press/webinar-automatic-enrolment-declaration-of-compliance.aspx Automatic enrolment – are you ready?www.tpr.gov.uk/press/webinar-automatic-enrolment-are-you-ready.aspx Automatic enrolment – dispelling the myths.www.tpr.gov.uk/press/webinar-automatic-enrolment-dispelling-the-myths.aspx Implementing automatic enrolment systems and pension schemes.www.tpr.gov.uk/press/webinar-implementing-automatic-enrolment-systems-schemes.aspx
We are here to help! Request a guest speaker:https://secure.tpr.gov.uk/speaker-request.aspx Contact us at:www.tpr.gov.uk/contact-us.aspx Subscribe to our news by email:https://forms.thepensionsregulator.gov.uk/subscribe.aspx Thank you The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.
Exception - workers in notice period If notice is given or received by the worker (eg resignation or dismissal): before, or up to 6 weeks after, the automatic enrolment/re-enrolment date then the employer does not have to enrol the worker. During their notice period the worker cannot opt-in or join. If notice is withdrawn, then the enrolment duty will be effective from this date.
Exception - workers with HMRC tax protection Where an employer has ‘reasonable grounds to believe’ (eg the worker shows them documentary evidence) that a worker has HMRC tax protected status for their pension savings (eg Primary, Enhanced or Fixed protection): the employer may choose not to automatically enrol/re-enrol them. The worker would still have the right to opt-in/join.
Exception - workers who have ceased active membership For workers: who contractually joined a qualifying pension scheme*and then ceased membership of that scheme, ahead of either their automatic enrolment (AE) date or the automatic re-enrolment (Re-AE) date, or who have previously been automatically enrolled into a qualifying pension scheme and opted out or ceased membership of that scheme ahead of their automatic re-enrolment date. then: if they ceased membership/opted-out morethan 12 months before their AE date then they will have no duty to re-enrol them until the next cyclical re-enrolment date; or, if they ceased membership/opted-out up to 12 months before the AE/Re-AEdate - then the employer may choose whether or not to automatically enrol them if they are an eligible jobholder on their AE/Re-AE date. If the employer chooses not to automatically enrol/re-enrol them the employer will have no duty to re-enrol them until the next cyclical re-enrolment date. • * or a pension scheme that would have been a qualifying • scheme if the worker had been a jobholder when they ceased
Exception - workers with winding-up lump sums For a worker who has: ceased membership of a defined contribution (DC) scheme, and been paid a Winding-Up Lump Sum (WULS), and ceased employment, and is subsequently re-employed by the same employer... then: if they have an automatic enrolment / re-enrolment date which falls up to 12 months after the payment of the WULS, the employer may choose whether to enrol them or leave them until the next cyclical re-enrolment (and the re-employed worker does not have the right to opt-in or join during the 12 months after a WULS payment) or, if they have an automatic enrolment date which falls more then 12 months after the payment of the WULS, then they will have no duty to re-enrol them until the next cyclical re-enrolment date
Using an existing contract-based pension scheme For a pension scheme to be a ‘qualifying scheme’: it needs to be tax registered it needs to satisfy the minimum criteria (ie be at or above the legal min employer and total contributions, eg 1% and 2% before 1 Oct 2017) and, for a contract-basedpension, the employer and pension provider must have a signed agreement, where the employer commits to pay at least the legal minimum employer contributions, and unless the employer agrees to pay at least the legal minimum total contribution (eg 2% before 1 Oct 2017) - there must be a jobholder agreement for each active member (an agreement by the member to pay the difference between the employer contributions and the legal minimum total contribution). Additional criteria apply for an automatic enrolment pension (which must also be a qualifying scheme).
What to communicate to workers • Non-eligible jobholders and entitled workers notalready in a qualifying pension scheme must be provided with information* telling them about their right to opt-in or join a pension scheme. • For eligible jobholders being automatically enrolled (and non-eligible jobholders being enrolled after opting-in) they must be provided* with: • information about their enrolment • what it means for them, including the contributions, and • their right to opt-out. • Workers subject to a postponement need to be given key information* such as the length of the postponement period and their rights to opt-in or join. • * See Useful links for template letters
Is Eddie a worker? Eddie is a self employed graphic designer who regularly works for Acme Workshops Ltd, but works for other clients too. Eddie’s contract with Acme does not permit him to send a replacement. Eddie designs all of Acme’s flyers and magazine ads and also designs and updates their website. Eddie generally works from home, but sometimes he works in Acme’s offices. He uses his own equipment to print the flyers and if something goes wrong with the printing he produces a replacement batch at his own expense. When he is given a project to do, Acme set a deadline, but leave it up to him to plan when, where and how the work will be done. Eddie invoices Acme at the end of each project that he works on. Question - Should Acme Workshops consider Eddie to be their worker?
Is Eddie a worker? Eddie is a self employed graphic designer who regularly works for Acme Workshops Ltd, but works for other clients too. Eddie’s contract with Acme does not permit him to send a replacement. Eddie designs all of Acme’s flyers and magazine ads and also designs and updates their website. Eddie generally works from home, but sometimes he works in Acme’s offices. He uses his own equipment to print the flyers and if something goes wrong with the printing he produces a replacement batch at his own expense. When he is given a project to do, Acme set a deadline, but leave it up to him to plan when, where and how the work will be done. Eddie invoices Acme at the end of each project that he works on. Eddie cannot reasonably be considered a worker, as: i) he markets his services to other clients, ii) he uses his own equipment iii) he works unsupervised and iv) he guarantees the quality of his work.