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Workplace Pension Reforms & Auto-EnrolmentA Brief Guide for Employers

November 2016

Employers Legal Duties

Implement a Qualifying Workplace Pension Scheme

Automatically enrol all eligible jobholders

Allow non-eligible jobholders to opt In and entitled workers to join

Facilitate opt outs within the opt out period and refund contributions

Maintain contributions

Automatically re-enrol all eligible jobholders every three years

Keep records

Communicate appropriate information to workers on a timely basis

Register Pension Scheme with Pension Regulator

What is a qualifying pension scheme?

A UK pension scheme is a qualifying pension scheme if it's a registered pension scheme that meets certain quality standards it must:

• Be able to accept members by auto-enrolment; and

• Have a default contribution basis; and

• Have a default investment option; and

• Maximum of 0.75%pa management charge

How much must be paid to a money purchase pension scheme to meet the qualifying standard under workplace pension reform?

For a money purchase pension scheme to be a qualifying pension scheme it must receive a minimum level of contribution

Contributions are calculated on “banded earnings”

2016/17 Banded Earnings are between £5,824 to £43,000

Frequently called the “standard quality test”

Standard quality test

Once fully implemented, a total minimum contribution of 8% of qualifying earnings (including an employer contribution of at least 3%) will be needed in each relevant pay reference period to meet the standard quality test.

However, the minimum contribution needed is being stepped-up in phases, as follows:

Contribution phasing period*Dates subject to parliamentary approval

Minimum employer contribution

Minimum total contribution (gross)

Phase 1 Staging date – 5th April 2018* 1% 2%

Phase 2 6th April 2018 – 5th April 2019* 2% 5%

Phase 3 April 2019* 3% 8%

What can I expect it to cost me?

Certain assumptions:

• Assume all workers are assessed to be Eligible Jobholders

• Assume that the standard quality test for assessment of income applies

• Aged 22 – State Pension Age

• Earnings over £10,000 pa

• Bands earnings as: £5,824 - £43,000

• Workings based on 2016/17 bandings and rates

NB: Earning Figures are pro-rated for shorter pay reference periods

Indicative costs for a single employee with different earnings and how payments will change 2016/17 Tax Year

Annual Gross Pay £15,824 £25,824 £45,824

Band earnings PA £10,000 £20,000 £37,176***

Contributions ER* EE** ER* EE** ER* EE**

Now 1:1 £8.33 £6.66 £16.67 £13.34 £30.98 £24.78

April 2018: 2:3 £16.67 £20.00 £33.33 £40.00 £61.96 £74.35

April 2019: 3:5 £25.00 £33.34 £50.00 £66.66 £92.94 £123.92

*Employer contributions will be an allowable deduction for corporation tax relief purposes**Employees receive tax relief to their highest marginal rate, these are net of basic rate tax***As Band Earnings are between 5,824 and 43,000 maximum pensionable is 37,176

Examples based on a Monthly Payroll

Alternative quality tests

An employer can certify that their scheme is a qualifying scheme if it passes any of the Alternative Quality Tests based on the scheme's usual pensionable pay definition (and passes other criteria)

Contribution levels on Alternative Quality Tests result in higher contributions as rates are higher and do not disregard the first £5,824 under banded earnings.

Comparative quality test percentages as at phase 3, April 2019 below;

Test Pensionable Pay Minimum employer

contribution

Minimum total contribution

(gross)

Comment

Standard Banded Earnings £5,824 - £43,000 3% 8% Usually lowest cost owing first £5824 ignored

Alternative 1 Basic Pay Only 4% 9%

Alternative 2 Minimum of 85% Total Pay 3% 8% Difficult to monitor

Alternative 3 Total Pay 3% 7%

When will it apply to a business?

This will apply to all employers in the UK

The new employer duties are being introduced from 1 October 2012 to 1 February 2018. The staggered introduction of these duties is known as staging. Broadly speaking, the new duties will apply to the largest employers first, with some of the smallest employers not being affected until 2017.

Each employer's staging date is based on their PAYE records as at 1 April 2012 - if an employer has more than one PAYE scheme, their staging date is set by the largest scheme.

Regardless of size, employers who start trading from 1 April 2012 to 30 September 2017 will be in one of the last staging groups.

The Pensions Regulator will write to each employer at least 12 months before their staging date to tell them about their duties.

Letters issued at present advising employer to nominate a contact with The Pensions Regulator

Who will be Auto-Enrolled?

Category of Workers for Auto-Enrolment

Qualifying Earnings Age

16-21 Age group 22 to State Pension Age

State Pension Age to 74

£0 to £5,772 Entitled Worker

£5,772 up to £10,000 Non Eligible Jobholder

Above £10,000 Non-Eligible Jobholder Eligible Jobholder Non-Eligible

Jobholder

Qualifying Earnings typically includes Salaries, Wages, Overtime, Commission, SSP, SMP and more

Eligible Jobholders are enrolled, the other workers can ask to join.

Those with enhanced or fixed protection (2012 or 2014) should opt-out of auto-enrolment to ensure their protection isn't lost

Postponement

Postponement can be useful where you want to align internal processes;

• New employee probationary periods

• Financial periods

• Payroll cut offs

Postpone a worker’s entry to Auto-Enrolment from 1 day up to 3 months

Notify postponed worker within 6 weeks

Worker has the right to Opt-In or Join during postponement

Employer must assess worker on last day of postponement

Employers can not repeatedly postpone a workers assessment

Can the business’s systems monitor postponement dates?

Opting Out

Once enrolled, workers may decide to Opt Out

Employers must advise workers of the entitlement and the Opt Out process,

• Opt Out method determined by who the Pension Provider is

• Made by employees direct to Employer or Pension Provider

A one month Opt Out Window starts on the later of;

• When the worker becomes active member of the scheme

• When the employer issues a notice of enrolment to worker

If inside the window, both worker and employer get a refund of contributions

If outside of the window, worker can Opt Out but no refunds are made

Early Opt Outs (before Opt Out Window starts) are not allowed

Employee Safeguards

Employers can not tell, pay or induce workers to Opt-Out

• Fixed Penalty: £400

• Escalating penalties: £50 - £10,000 a day

• Criminal prosecution: Up to 2 years in prison for repeated non-compliance

Employers must not imply during the recruitment process that applicants may be given the job based on whether they will opt out of a workplace pension

• Prohibited Recruitment Penalty Notice: £1,000 - £5,000 for each instance

Refrain from giving friendly advice to workers

• Refer them to the statutory communications

Employer Duties to Categorised Workers

Employer Duties Eligible Jobholder

Non-Eligible Jobholder Entitled Worker

Notify in writing of the scheme X X X

Automatically Enroll X

Inform worker of how to join the scheme X X

If the employer receives requests to join scheme, the following also applies.

Keep records of enrolment or join process X X X

Process opt-out notice X X X

Employer contributes to scheme X X

Collect employee contributions X X X

Pay combined contributions to Pension X X X

How will you organise and document employee communication?

Do you have software or a provider that handles some or all of these processes?

Communication

Potentially there is a lot of communication to issue to workers both initially and ongoing;

Employer Communication Duties How Often Time Limits

Write to workers in existing qualifying workplace pension scheme (QWPS) Initial but Optional Suggest within 2 months of your

staging date

Notify workers not in QWPS in writing of your Auto Enrolment scheme Initial and Ongoing Within 6 weeks of your staging date or

the worker’s start date

Notify relevant workers where a Postponement period has been applied Initial and Ongoing Within 6 weeks of your staging date or

the worker’s start date

Inform relevant workers of how to join the scheme early Initial and Ongoing Within 6 weeks of your staging date or

the worker’s start date

Notify a worker of their enrolment and how to Opt Out Ongoing Within 6 weeks of enrolment (ideally,

4 days after Pension Provider notified)

Different pension providers handle some, all or none of the communications

Payroll software may be able to provide basic worker communication

Assessment and Reassessment

After you have staged, each subsequent pay period requires you to:

Re-assess Non-Eligible Job Holders and Entitled Workers

Assess New Employees (or postpone assessment for up to 3 months)

Assess workers who have passed their postponement date

Process Non-Eligible Job Holders and Entitled Workers Opt-In Notices

Process Opt-Outs Notices and administer any relevant refunds

Every 3 years, reassess workers (mainly to identify Opt Outs)

Remember: Issue any associated communications to relevant workers

Payroll is Key to Auto-Enrolment

Good Payroll software should have some level of Auto-Enrolment functionality

Assessing workers by calculating;

• An employee’s age

• Their earnings bracket based on the pay in that period

Capable to apply multiple rules to;

• Handle multiple pension schemes,

• Add a relevant pension scheme details to the correct employees

• Apply the calculations to employees earnings during the payroll

Payroll software may even;

• Generate basic worker communication

• Generate files suitable for upload to some Pension Providers

Maintain Contributions

After each pay run you will have to provide contributions details to your Pension Provider

Pension Providers do not have a common file format that they all support

Good Payroll software will be able to generate files for upload with some of the most popular Auto Enrolment Pension Providers

• Establish the file format the provider requires early on

• Establish if Payroll Software will meet that requirement

• Establish timescales and additional costs

From this upload some Pension Providers may issue worker communication

• Communication from only the Pension Provider may be insufficient

If your provider does not handle communication, establish how Payroll software can help.

Capacity Crunch come 2017.Many employers will be looking for a Workplace Pension at the same time.

2/1/2014

4/1/2014

6/1/2014

8/1/2014

10/1/2014

12/1/2014

2/1/2015

4/1/2015

6/1/2015

8/1/2015

10/1/2015

12/1/2015

2/1/2016

4/1/2016

6/1/2016

8/1/2016

10/1/2016

12/1/2016

2/1/2017

4/1/2017

6/1/2017

8/1/2017

10/1/2017

12/1/2017

2/1/2018

0

20

40

60

80

100

120

140

Example : Numbers of Employers Staging by Month

Employers Staging

Penalties if employers don't meet their obligations under workplace pension reform

A compliance notice requiring them to put matters right within a set timescale or an unpaid contributions notice requiring them to make good arrears of contributions. The notice can also require the employer to pay interest of up to 4.2% above inflation on the unpaid contributions.

If contributions are overdue by three months or more, the Pensions Regulator can make the employer meet the cost of both their own and the jobholders' contributions.

If these notices aren't complied with, the Regulator can levy a series of fixed rates fines, daily penalty notices potentially leading to imprisonment;

Fixed penalty of £400 for non compliance or late compliance. Further instances;

£50 per day for firms with 1-4 employees

£250 per day for 5-49 employees

£2,500 per day for firms with 50-250 employees

Civil Penalties for failing to pay contributions to the Pension Provider

£5,000 per individual or £50,000 per organisation

Up to 2 year imprisonment

What will happen first?

The Pensions Regulator has issued letters for employers staging for the employer to nominate a contact.

We recommend the employer nominate someone at their organisation

• It will ensure the employer receive updates on Auto Enrolment

The employer should look to form an Auto-Enrolment Action Plan as soon as possible

Auto-Enrolment Action Plan

Check your Staging Date;

• Visit www.thepensionsregulator.gov.uk and enter your PAYE reference to obtain your staging date

Ensure you have a qualifying scheme;

• Speak to a reputable Financial Advisor to see if any existing scheme meets qualifying criteria for Auto Enrolment. Establish if you need to put another scheme in place.

Communicate changes with workers ahead of your Staging Date

• Your Financial Advisor or Pension Provider will have lots of material for you hand out and place around the workplace. Promote the changes as a benefit.

Check your systems;

• Speak to your Pension Provider, Payroll Team, HR and Finance before making any commitments. Make sure you have a solutions that suits your business.

What happens when my employees leaves to work somewhere else?

• Employees may continue to pay into the pension scheme after leaving your employment. Their new employer will have their own arrangement.

How long do I need to prepare for Auto-Enrolment?

• The Pension Regulator says 12 months before your staging date. The earlier you prepare, the better.

Can Mitchell Charlesworth handle Auto Enrolment?

• Yes. We take a unified approach to our services, offering a rounded solution.

I have very few employees. Surely, I will not be affected?

• Every employer in the land is affected. Even if your workers are under 22 earning less that £10,000 you have an obligation to communicate to workers to provide a compliant scheme.

Are Company Directors Auto-enrolled?

• If one of two or more directors have a contract of employment then they should be treated as a worker. A contract of employment can be implied.

All my workers have zero hours contracts, am I excluded from Auto Enrolment?

• Enduring employee relationships are key here. Staff may be considered workers even if they are not carrying out work.

Frequently Asked Questions

Mike WallFinancial PlannerTel: 0151 255 2300mike.wall@mitchellcharlesworth.co.uk

Advice & Services:

Ken DaviesDirector of PayrollTel: 0151 423 7500ken.davies@mitchellcharlesworth.co.uk

Payroll Services:

• Assessment, Contribution Calculation, Files for upload to Pension Providers

• Process Opt-Outs, Join notices, handle multiple pension scheme

• Ongoing worker communication if required

• Contact Ken Davies or Joanne Nieman at our Widnes Office on 0151 423 7500

Financial Services:

• Bespoke review existing or identify existing arrangements for AE suitability

• Workshops for employees, announcement communications to workers

• Research the whole insurance market place to identify a suitable pension provider

• Contact Mike Wall or Richard Penn at our Liverpool Office on 0151 255 2300

The more complex the pension arrangement - the more complex the administration

www.mitchellcharlesworth.co.uk

Thank youThis Presentation is for information purposes only and is not financial product or investment advice or recommendation and has been prepared without taking into account the objectives, financial situation or needs of individuals. Before making an investment decision, prospective investors should consider the appropriateness of the information having regard to their own objectives, financial situation and needs and seek financial, legal and taxation advice appropriate to their jurisdiction