Workplace Pensions

Planning your Automatic Enrolment Project

V3 L&P AE June 16

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Workplace Pensions and Auto enrolment - Executive Summary

Very simply, in order to comply with Auto Enrolment legislation you need to consider and act on the following points and actions to establish a qualifying workplace pension;

Define your workforce

Set up a qualifying workplace pension scheme

Assess your workforce

Enrol your workforce

Make deductions from Payroll of employee contributions and pass them to a Qualifying Workplace Pension Scheme

Communicate with your workforce

Advise the Pensions Regulator of the action you have taken

Ongoing Record Keeping (minimum 6 years or 4 years for opt-outs)

Certify your scheme if you do not use Qualifying Earnings

Automatic re-enrolment every 3 years

Ongoing Scheme Corporate Governance

Who are MM Employee Benefits?

• MM Employee Benefits is a regulated firm of employee benefits advisers, based in London.

• We have over 23 years’ experience in advising, implementing and managing employee benefits arrangements, including workplace pensions, for small and mid size firms.

• We are recognised by our professional partners (lawyers, accountants and HR firms) as being excellent at what we do. We are a London & Partners approved service provider.

• We have a small team of people who look after our clients on a personal level; we use well designed processes to make sure administration is simple and efficient and therefore cost effective.

• You can read more about us at www.mmemployeebenefits.co.uk including some client testimonials.

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Work Place Pension Reform

The law on employer duties on workplace pensions has changed.

Every employer with at least one member of staff now has new duties, including enrolling those who are eligible into a workplace pension scheme and contributing towards it. This is called automatic enrolment.

It is called automatic enrolment because it creates an automatic statutory entitlement for your staff – they don't have to do anything to be enrolled into your pension scheme, but it is not automatic for you.

You need to take steps to make sure your eligible staff or workers are enrolled into a pension scheme. Even if you already pay contributions into a pension scheme for your staff, you still need to check if it is suitable for automatic enrolment.

The following tasks in particular will take you some time:

Reviewing your workforce; do you have any casual staff, zero-hour contract employees, freelancers, contractors? Do you have more than one payroll? Who is a qualifying ‘worker’ and who is not.

Reviewing existing pension schemes and contributions and planning migration options (if applicable)

Setting up a qualifying pension scheme.

Enrolling your staff into the pension scheme. Contributions to the scheme come from three places. You will make deductions from their pay, you will make employer contributions and the government will contribute in the form of tax relief. You'll need to make sure you contribute the right amount.

Establishing an assessment process and linking this to your payroll

Once you've fully completed this process, you'll need to let the Pensions Regulator know how you've met your automatic enrolment obligations by completing a Declaration of Compliance.

Ideally, you should allow up to 6 months to prepare, but at least 3 months in order to be ready the month before.

Remember, automatic enrolment is your legal duty and if you don't act you will be fined. See Appendix II

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Auto Enrolment in more detail

From October 2012 onwards, starting with the largest companies, it became law for every employer to automatically enrol workers into a workplace pension scheme (and contribute to it on their behalf) if they: are aged between 22 and State Pension Age

earn more than £10,000 a year (in 2016/17)

work in the UK

are not already a member of a qualifying pension scheme

A scheme suitable for automatic enrolment must not:

impose barriers to joining the scheme, such as probationary periods or age limits for members

require staff to make an active choice to join or take any other action prior to joining e.g

completing an application form

require the provision of extra information in order to stay in the scheme beyond the information required for automatic enrolment

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What is a Qualifying Workplace Pension Scheme?

A qualifying scheme is one which meets the qualifying criteria and the minimum requirements. Can I use an existing scheme? You may use a Group Self Invested Personal Pension (SIPP), a Small Self Administered scheme (SSAS) or a Group Personal Pension providing that they meet the minimum requirements (called ‘qualifying criteria’, see below). You should avoid using stand-alone individual arrangements (such as an individual personal pension) as each plan will need a scheme certificate, which would need renewing every 18 months. You need to check carefully, as most existing schemes may not qualify or be able to qualify, without some changes and authorisation from the pension provider.

Qualifying Criteria

For a UK personal pension scheme to be qualifying it must:

be an occupational or personal pension scheme

be tax registered

meet minimum contribution levels based on certain types of pay

satisfy certain minimum requirements including having: a. a charging cap of 0.75% per annum inclusive b. a default fund where employer and employee contributions will be invested

be subject to regulation by the Financial Conduct Authority and have its operations carried out in the UK under section 19 of the Financial Services and Markets Act 2000

have certain types of agreements in place between the employer, the ‘jobholder’ and the

provider of the scheme

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The minimum employer and employee contribution requirements

To be a qualifying scheme, a certain level of contribution pension is required:

The employer must make contributions

After phasing in, there must be a total minimum contribution of at least 8% of qualifying earnings, at least 3% of which must be employer contributions.

see section below on contributions and also Appendix I

Assess your workforce – ‘workers’ not employees!

Firstly you need to establish who qualifies as a ‘worker’, defined by;

Age

Earnings

UK worker Using both the definitions from the Pension Regulator and HMRC, in particular, you must include specific groups such as

a. freelancers

b. paid interns

c. contractors

d. casual staff

e. zero hour contract employees Partner? Limited company Director? See Appendix III if you a Director of your own limited company and / or have no staff. If you are a Partner or a Partner of an LLP, we recommend you take advice from an employment solicitor as to whether you are deemed a ‘worker’ for auto-enrolment purposes.

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These things will determine whether your worker is; an Entitled Worker or an Eligible Jobholder or a Non-eligible Jobholder

an Entitled Worker can request to join a scheme but an employer is not required to contribute

an Eligible Jobholder must be auto enrolled

a Non-Eligible Jobholder can opt into an auto enrolment scheme and as an employer you are then required to contribute

You must perform the assessment of your workers at outset. It is important to note that if in future there are any new employees or workers you will need to reassess each pay period that happens. Also, if earnings change, you may need to re-assess.

Communicate the changes to all your workers

Written information must be provided to workers, relevant to their category (including those already in a qualifying scheme), about the new scheme or changes to the existing scheme. You have to provide this information in a certain format:

Entitled workers - that they can request to join

Eligible workers - that they will be auto enrolled

Non eligible jobholders - that they can opt in Employers must not:

Discriminate against employees seeking a pension

Influence jobholders to opt out

Give any pensions advice to workers

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Do your staff or workers have any choice about being enrolled?

Your staff can opt out of your employer’s workplace pension scheme after they’ve been enrolled. But if they do, they’ll lose out on your employer’s contribution to their pension, as well as the government’s contribution in the form of tax relief. If they decide to opt out, they need to complete an opt out form or do it online or by email or by phone. If directed to you, you must action the opt out.

If they decide to opt out within 30 days of being enrolled, any payments they’ve made into the pension pot during this time will be refunded.

After the first month, they can still cease membership at any time, but any payments

they’ve made will stay in their pension pot for retirement rather than be refunded. They can re-join your workplace pension scheme at a later date if they want to.

By law, you as an employer must re-enrol them back into the scheme approximately every three years, as long as they still meet the eligibility criteria.

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Complete a Declaration of Compliance for The Pensions Regulator and maintain records

Each employer must complete a Declaration of Compliance for The Pensions Regulator and give them details of their workplace pension scheme and the number of people automatically enrolled. Employers also need to provide Automatic Enrolment details to their selected pension provider. Other administrative duties you will need to carry out include:

Responding to opt out requests and arranging full refunds

Responding to opt-in requests from workers who are not eligible for auto-enrolment due to not meeting the criteria

Keeping and maintaining records relating to each pension scheme and each jobholder

Keeping track of age and earnings

Periodically re-enrolling any eligible jobholders who are not members of the qualifying

pension scheme

Ensuring eligible jobholder contributions are paid by the 22nd (electronic payments) or 19th (cheque/cash) of the following month

What happens if I don’t comply?

There are certain employer duties you must comply with. If you fail to comply with your duties, the regulator may take enforcement action and issue a notice and / or a penalty. Key point:

The responsibility for complying with the employer duties rests with the employer

If you don’t comply, you’ll face enforcement action from The Pensions Regulator

Enforcement action starts with statutory notices and is followed by penalty notices. Further non-compliance may result in court action.

See Appendix II about the consequences of not acting.

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Contribution Levels

Minimum pension contributions are based on a percentage of ‘qualifying earnings’. These earnings include all remuneration that you pay your workers, as follows:

Salary

Wages

Overtime

Bonuses

Commissions

Statutory payments such as Sick Pay, Maternity, Paternity or Adoption Pay

However under the Pensions Regulator’s rules, you do not have to pension all of these earnings, just a band of them. For 2016/17, this is the amount that a worker earns over £5,824 and under £43,000;

Qualifying Band Earnings

From Total contribution required Of which the Employer must pay at least

Your staging date 2% 1%

April 2018 5% 2%

April 2019 8% 3%

There are other options available to you in respect of the level of contributions you pay into your pension scheme, for example to use ‘basic salary’ only or to use ‘total earnings – see Appendix I – however generally this is the minimum.

Basic Salary only basis

From Total contribution required Of which the Employer must pay at least

Your staging date 3% 2%

April 2018 6% 3%

April 2019 9% 4%

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Choosing your Pension Provider

There are approximately 80 companies currently in the market place offering solutions for small and medium sized employers. However, many of them will not take the business of very small employers (under 50 workers) We will recommend the use of the most suitable pension provider for you and your pension scheme. The selection of provider will defined by;

I. the contribution structure of your scheme II. number of employees

III. ages of employees IV. future contributions V. whether there is an existing scheme and if

this will be transferred across VI. capacity of the pension provider to take on

new clients Reference will be made to the industry or sector you operate in. Pension providers are under severe capacity constraints and are being very selective on who they take on as clients. We will work to secure you the best provider on the most favourable terms; but critically with a company that can deliver on their end of the AE project.

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A solution to your Automatic Enrolment project

We recognise that many employers need assistance in delivering the stated aims of the Governments Work Place pension reforms. For a fixed fee we will provide a service to lead you through, manage and undertake your project elements to reach a fully compliant and properly established scheme. The table below details what we will do:

A bespoke Auto-enrolment project plan – see sample available on request

Confirmation of staging date

Registration as secondary contact with The Pension Regulator

Market review for the best and most appropriate pension scheme provider

Establishing qualifying pension scheme Project management and monthly update phone meeting

Guidance on identifying and assessing your workforce

Guidance on requirements for assessment, contributions and refunds

Ensuring processes are put in place for assessment, contributions and refunds with payroll / pension provider

Data transfer test 1 month prior to staging

Oversight of 1st month’s assessment and contributions

Registration with The Pensions Regulator

Guidance on the roles and responsibilities of issuing communications

Provide key employee communications templates for you to use

Plain English employee guide / FAQ to give to your employees/workers

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Auto Enrolment project - fees

Our fees are dependent on a number of factors and will be based on the work required to fulfill your employee benefits and auto enrolment objectives and how much of the duties are performed by us and by you. Based on a standalone, basic project, the fee for services is dependent on the number of workers that you have at your project commencement date, as follows:

Your auto-enrolment project

Number of workers at staging date

Project fee

1-2 £795 3-5 £1,475

6-10 £1,875 11+ £2,350

All fees quoted assume work is conducted in line with the services detailed on page 13. Where you request additional services (for example, wishing to amend and make qualifying an existing pension scheme or deal with transfer of existing pensions to the new AE qualifying scheme), these will always be discussed in advance and agreement will be obtained as to the type of service required and by quoting the an additional fixed fee. Payment Terms

50% of the fees will be invoiced initially and payment required before the Automatic Enrolment project commencement.

The balance and any additional fees invoiced on payment of your first employer pension contribution.

Payment of final invoice is within 14 days of date of invoice.

I wish to proceed with our Auto enrolment project – what do I do?

To proceed with your Auto Enrolment project, please complete the form in Appendix IV on the last page and return it to us. We will send you a copy along with an acknowledgement letter and a request for some key data. If you wish to discuss your situation and project, please contact:

Caroline Masterton Head of Corporate Client Services 020 8874 1230 caroline.masterton@mmeb.co.uk

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Appendix I decisions to be made

If planned correctly at outset, the project can be managed to be manageable simple and cost effective; to help achieve that certain decisions have to been made to create a the basis of the Auto Enrolment project plan, for example; Postponement period – up to 3 months or auto enrolled on joining service? Your QWPS can have a structure whereby new workers are auto-enrolled on joining service or you may operate a postponement period of 3 months. If selected, this means that your auto enrolment duties to enrol staff and begin deducting contributions will start 3 months after your Staging Date or 3 months after the date of any new qualifying workers joining you, unless any of the workers exercise their right to opt in earlier than the 3 months postponement. Contribution Levels We will discuss the options of basing contributions on;

I. ‘qualifying band earnings’ II. ‘basic salary’ or

III. ‘total earnings’ Next, we will look at contribution level options. How much by you and how much by the employee; all aligned to your recruitment motivation and retention strategy and to meet legal minimums. We will consider any existing scheme contribution structure and whether you need to amend this to qualify or even reduce the contributions or bring in employee contributions. We will shape the scheme to your situation but at all times ensure it is meeting the AE minimums as they change over the years ahead. Communications The Pensions Regulator prescribes a number of set letters that must be sent throughout your auto enrolment project.

Postponement notice letter Letter to workers who are being automatically enrolled Letter to workers who are not being automatically enrolled

These are mandatory – however you may choose to provide additional information and we will discuss what will work best for your workforce and business culture.

We will provide you with a ‘Plain English guide / FAQ’ to distribute to your current and future employees/workers explaining the scheme and all about auto enrolment. We will brand the communications to your business to create an internal ‘benefits’ feel

We can also provide in house employee presentations and one to one follow up meetings

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Appendix II What happens if I don’t comply?

The Regulator recognises that most employers will want to do the right thing for their staff. Their overall approach is to educate and enable you to comply with the legislation. However, the responsibility for complying will rest with you, the employer.

The regulator will promote good compliance behaviour among employers by ensuring that the legislation is being applied fairly. In cases where you haven’t understood your duties or have been unable to comply, they’ll work with you to get you compliant.

But if you have chosen to ignore your duties, they will use their powers where necessary to ensure compliance. The full range of enforcement options is summarised below;

Informal action The Regulator can issue guidance and instruction by telephone, email, letter and in person. or they can send a warning letter confirming a set time frame for compliance with the duties. Statutory notices Statutory notices can direct you to comply with your duties and / or pay any contributions you have missed or are late in paying. They have further discretionary powers which allow them to estimate and charge interest on unpaid contributions and direct you to calculate and / or pay unpaid contributions. Penalty notices They can issue penalty notices to punish persistent and deliberate non-compliance. A fixed penalty notice will be issued if you don’t comply with statutory notices, or if there’s sufficient evidence of a breach of the law. This is fixed at £400 and payable within a specific period. They can also issue an escalating penalty notice for failure to comply with a statutory notice. This penalty has a prescribed daily rate of £50 to £10,000 depending on the number of staff you have. They can issue a civil penalty for cases where you fail to pay contributions due. This is a financial penalty of up to £5,000 for individuals and up to £50,000 for organisations. Where employers fail to comply with a compliance notice or there is evidence of a breach, they can issue a prohibited recruitment conduct penalty notice. This penalty has a prescribed rate of £1,000 to £5,000 depending on the number of staff the employer has. They aim to fully recover all the penalties that they issue. Court action The Regulator can take civil action through the court to recover penalties. Employers who deliberately and wilfully fail to comply with their duties may be prosecuted. They can also confiscate goods where there is a criminal conviction and restrain assets during criminal investigations.

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Appendix III Ongoing monthly administration and support services

On a month to month basis, we will liaise with a designated HR/Payroll and employer contact to collate data on;

• new employees • employees that have left service • salary changes • administrative issues

We operate this under a pre-agreed and pre-formatted process which if adhered to will produce simple and effective benefits administration. The administration duties include:

i. When new employees join the company, we will ensure that they are given a full explanation of the benefits available to them as soon as any qualifying / probation periods are completed

ii. Make sure that employees are enrolled to all benefits and follow up communications

issued to the employee confirming eligibility

iii. Ensure that new employees are made aware on any action that they need to take in respect of joining the pension scheme (until auto-enrolment rules come into effect).

iv. Liaise with your payroll providers to ensure that the correct payroll deductions are made

v. Pay pension contributions across to the pension provider

vi. Cease the benefit membership and pension payments for employees that have left service

vii. Periodic reporting to HR of current scheme memberships

viii. Provide P11d figures for submission to HMRC each year

ix. Operate an helpline for your employees to call with any questions on their benefits

In addition, our advice service will provide:

i. Ongoing employer corporate pension advice

ii. Ongoing updates to rules changes and impact on employer

iii. Advice to employer re ensuring the schemes are running in line with corporate governance standards and guidelines set by the Pensions Regulator

This is not an exhaustive list – please see our detailed ‘monthly services’ summary

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Appendix IV Auto Enrolment project – project commencement agreement

To proceed with your Auto Enrolment project, please complete this page, and return it to us. We will send you a copy along with an acknowledgement letter and a request for some key data.

Employer name

Authorised signatory name

job title

Designated AE project contact name

Designated project contact info phone

email

Address

Payroll provider (if known)

Number of workers / employees

In the event of this agreement being terminated by you, a pro-rata proportion of the agreed project fee will be due, based upon work undertaken. The employer shall remain liable to pay any fees in respect of work carried out prior to the effective date of termination. This agreement is supplemental to our Corporate Client Agreement. In the event that the terms hereof conflict with the Corporate Client Agreement then these terms shall prevail.

NAME: POSITION:

SIGNATURE: DATE:

Please return to: Caroline Masterton Head of Corporate Client Services

MM Employee Benefits Unit 1, 118 Putney Bridge Road

London SW15 2NQ caroline.masterton@mmeb.co.uk or fax 020 8812 3721