Auto-enrolment for pensions the lessons learnt. Anne Turner Chief Operating Officer

Transcription

1 Auto-enrolment for pensions the lessons learnt Anne Turner Chief Operating Officer

2 Auto-Enrolment for Pensions Practical insights into Orbit s auto-enrolment journey Overcoming the challenges of implementing auto-enrolment Ensuring a cost-effective, efficient and sustainable auto-enrolment roll out.

3 What is Auto-Enrolment Legislative duty on employers to auto-enrol all eligible jobholders into a qualifying pension scheme. Applies to all employers who employ one or more UK workers Greatest ever change to social security policy Increased costs for employers Administrative and compliance issues Salary exchange (sacrifice) implications TUPE requirements apply immediately (previous opt-outs do not register)

4 Staging Dates Orbit aligning staging date with pension strategy changes Bringing forward to 1 st April 2013 Postponing for 1 month on staging date

5 Orbit s pensions strategy Basic Principles Equality Mitigation of risk Cost to employee Cost to Orbit Closure of 4 defined benefit schemes from April 2013 Closure of small defined contribution scheme from April 2013 One single pension scheme available to all staff (SHPS DC) Bring forward Auto-enrolment to April 2013

6 Assessment Eligibility assessment Category Enrolment Contributions Eligible worker (22 SPA* yrs old with pay of 9,440) Non-eligible worker (under 22 or over SPA* or earn 5,668-9,440) Have to auto-enrol Can opt to join but don t have to be auto-enrolled Orbit have to pay contributions Orbit have to pay contributions Entitled worker (earn < 5,668) Can opt to join but don t have to be auto-enrolled Orbit do not have to pay contributions Figures above are 2013/14 figures Orbit will treat non-eligible and entitled workers as the same as it is one process and Orbits new Pension Strategy is based on equality

7 Assessment (continued) The salary used to work out eligibility can be: - pensionable pay (including overtime, commission) - basic pay Contribution rates vary depending on which pay is used Minimum contribution requirement (%) if based on all pensionable pay Minimum contribution requirement (%) if based on only basic pay Total Employers Total Employers Staging date to 30 Sept % 1% 3% 2% 1 st Oct 2017 to 30 Sept % 2% 6% 4% 1 st Oct 2018 onwards 8% 3% 9% 6% Orbit will be using basic pay therefore it is imperative that all secondments and acting up are paid as allowances not change of salary

8 Orbits Pension Auto-Enrolment Strategy Based on Basic pay Postponement period depends on start date if up to 17 th of the month it is 2 months if 18 th onwards it is postponed to the 1 st day of the 3 rd month (Thomson system requirements) Non-eligible and entitled workers will receive the same Orbit contributions as eligible workers Default contribution level of 1% and default fund Target Date Employees may amend contribution rates at any time and Orbit will pay 2:1 to a max of 10% No automatic salary exchange applied but can be selected

9 Orbits Pension Auto-Enrolment Strategy (continued) 9 funds to select from including the Target Date Fund Communications programme key to success ensure all employees Presentations to Your Orbit and Managers to enable them to support process Use of presentations, FAQ s, Webinar, newsletters and letters/ s to engage and inform individuals

10 System Orbit will use a third party (the current flexible benefits provider) to operate auto enrolment Records of communication and decisions to be kept for 6 years and may be reviewed by the regulator Communication requirements eligibility postponement notice at each stage birth dates (22 years)

11 Opt-Out Employees may opt out within 30 days Opt-out form will come from Thomsons Orbit must refund contributions If opt-out is after 1 month no refunds available Refund is monetary contribution not investment Employees who have opted out are re-enrolled every three years Employees opt out post 30 days is by way of suspension of payments by changing contribution level to 0%

12 Postponement Up to 3 months from the staging date from start date from eligibility (age or salary changes) Must inform employees of postponement/give option to opt in Helps manage situation for short-term workers Aligns with payroll processes One process per month

13 Practical Insights Key decisions to be made such as: What are the strategic principals for example Orbit s pensions strategy is based on equality and so we are treating entitled workers more favourably that legislation requires Will pensionable pay be based on basic or pensionable pay as this effects the requirements of percentage employer and employee contributions. If basic pay is used (which can help with some fluctuations in earnings) there are some legal restrictions such as geographical allowances become pensionable Will postponement periods be implemented and will this be the same for existing staff as new joiners (Postponement is useful for managing the process and ensuring engagement of new starters)

14 Practical Insights (Continued) Key decisions to be made such as (Continued): Do you want to treat entitled workers according to the legislation and not contribute employer contributions or as Orbit has done treat them the same as noneligible workers? Is the current occupational pension scheme auto enrolment compliant or do you need to secure a new scheme? From here the admin and compliance issues can be dealt with. Using a system which is part of our online benefits system reduces the admin burden and risk of error. Strong understanding of the key stakeholders role is key along with a partnership approach.

15 Orbit Lessons Learnt/Overcoming Challenges Communication: face to face briefings and early engagement with staff consultative committees have been key. Often s and letters are ignored. Managers have also been educated on the impact of backpay which is included in the monthly assessment so they understand this may affect whether someone is auto enrolled. Another key communication point is that the first deduction MUST be taken through payroll even if someone has opted out before payday Legislation is complex and so partnering with a professional pensions consultancy is important

16 Orbit Lessons Learnt/Overcoming Challenges (Continued) Aligning to our wider pensions and benefits strategy has been important. There are some Pension Regulator rules around safeguarding employees which restrict employers such as not communicating with employees directly post staging date about opt outs. This causes issues for employers who want to engage with staff on pensions in good faith.

17 Ensuring cost-effective, efficient & sustainable Auto-Enrolment Roll-out AE is potentially a big admin and compliance burden so utilise technology Make decisions early and ensure they are legally compliant Ensure managers are engaged and able to communicate the key impact on staff Ensure the link between HR/ reward and Payroll are clear and utilise the different skills within these functions

18 Hymans Robertson LLP and Hymans Robertson Financial Services LLP are authorised and regulated by the Financial Services Authority

19 Getting ready for 2013 Five key steps 1. Define clear objectives 2. Plan design and financial analysis 3. Assess delivery vehicle options 4. Design and testing of admin process 5. Communication Scale of project now appreciated 19

20 DB closed to new employees in 2002 DC section of existing Trust 8000 DC members (15% take-up) Unbundled administration Conclusion: Auto-enrolment changes everything Current administration not scaleable New solution required 20

21 Project objectives Retention of market leading pension benefit Source an efficient delivery solution Maintain strong governance structure Embrace new technology to improve member experience 21

22 Plan design Current structure 3-6% double match 12 month waiting period Creating the right structure post 2012 Consider alternative options Financial modelling 22

23 Plan design new structure E ee contribution M&S contribution Tier 1 Available immediately to all employees. Tier 2 Available to employees who have completed two years plan service. 3% 6% 6% or more 12% Retention of market leading structure Certify on basic pay Maintain levels of DIS benefit 23

24 New kid on the block - Master Trust Reviewed all the delivery options Advantages of contract based + Simplified transitions Governance structure Not FSA regulated Trust structure for DC Gross pay deductions White-labelling Fund manager changes 24

25 Sourcing a new provider Would market be interested? Extensive review Narrowed search down to 4 providers Comprehensive due diligence L&G appointed as Master Trust provider 25

26 Auto-enrolment review the results Improved operating costs for M&S Member charges reduced by 40% Successful implementation 15% opt-out rate 26

27 Consumer research % not confident of an adequate income Only 18% know what income they will need 66% would sign up for a scheme with a managed target 1 in 5 would like to increase contribution but won t get to it 78% would sign up to a scheme with automatic contribution increases 47% would save more if greater certainty of outcome 27

28 DC Cohort - the big issue help me do it do it for me let me do it 28

29 Fund size On-track - more push, less pull SSE plc Target fund at retirement Action? (e.g. reduce contributions, investment risk) Action? (e.g. increase contributions, investment risk, or increase target retirement age) Time 29

30 Thank you Any questions?