Auto-enrolment contribution phasing. An adviser guide

Transcription

1 Auto-enrolment phasing An adviser guide

2 1. An introduction to phasing When auto-enrolment was introduced in 2012, the Government set minimum s that would be increased over time to help employees save more for retirement. By law, new minimum levels for auto-enrolment will come into place on 6 April 2018 and 6 April This process is generally known as phasing. Auto-enrolment minimum s are increasing on 6 April 2018 Are you ready? before 6 April 2018 Next between 6 April 2018 and 5 April 2019 from 6 April 2019 The last 5 years were about laying down foundations and getting people in. The next few years needs to be about building on this and making sure people are on track to get a decent retirement. It s important that your clients understand that the minimum amounts they need to contribute will vary depending on the type of scheme, the rules of that scheme and the definition of pensionable pay used. There is a choice between four pensionable pay options. Date Effective To 5 Apr Apr Apr 2019 From 6 April 2019 Qualifying Band Earnings or Own definition (at least equal to basic pay and 85% total pay) Basic Pay Total Pay 1% 1% 2% 2% 1% 3% 1% 1% 2% 2% 3% 5% 3% 3% 6% 2% 3% 5% 3% 5% 8% 4% 5% 9% 3% 4% 7% The Pensions Regulator is issuing letters to all employers telling them about their duty to increase s. Standard Life will also communicate with employers and trustees who have a qualifying workplace pension scheme (QWPS) with us. Remember The Pensions Regulator has the powers to fine any organisation that doesn t comply with its auto-enrolment duties on time.

3 2. Supporting your clients Reviewing your clients levels and auto-enrolment strategy should not be a one-off event. An effective workplace pension must have at its heart a clear strategy for getting levels up to an amount that will give a realistic chance of a good outcome for employees. You have an opportunity to do more for your clients and not only help them comply with autoenrolment regulation. You can help them with some key decision making and develop an effective communication strategy that will add real value to their business. Helping clients comply with the new regulation According to a report from The Pensions Regulator only around 30% of SMEs are currently paying more than the minimums and 25% of these are concerned that their business will find it difficult to meet the new minimums. The same report also highlights a general lack of awareness of the dates and amounts of the increases. These clients are likely to need your support to make sure they understand the rules and have a plan in place to meet their duties. They may also be interested in help to reduce the administration. This guide outlines the key tasks your clients need to carry out to make sure they get everything done on time. Helping clients achieve a return on their workplace pension spend Clients who are less concerned about affordability and more interested in providing their employees with a benefit that they value, are likely to appreciate additional support. Clients may be looking for communication support to boost awareness and drive more engagement with their pension in general. We know from recent research we conducted that, despite the success of auto-enrolment in terms of numbers saving, engagement remains low. For example, almost 1 in 4 employees don t know that their employer pays into their pension. Since this is potentially a significant cost to the employer, your clients may well want to look at ways to address this to ensure their employees value the money they re paying into their pension and see it as part of their wider reward package. There is conflict between these low employee engagement rates and the increased costs your clients will face once s increase. This will need to be addressed if employers are going to start to see a return on their pension spend. In this guide we highlight how you can use phasing as an opportunity to improve the quality of your client s scheme, drive up employee engagement and ultimately help members make the most of their workplace pension. Getting employees to value their pension is still a real challenge and we can t expect employers to do it all on their own.

4 More than 8,707,000 employees have joined a workplace pension 10% estimated opt-out rates significantly lower than the original expectation 1 The annual total amount saved by eligible savers in 2016 has increased by approximately 4.3% in 2016 comparing 3 to 2015 About 78% of UK employees are now in a workplace pension scheme More than 807,810 2 employers have completed their declaration of compliance The size of the average pension pot has ballooned from 29,000 to 1 The Pension Regulator, Automatic enrolment Declaration of compliance report, July 2012 end September The Pension Regulator, Automatic enrolment Declaration of compliance report, July 2012 end September Calculations based on The Pension Regulator, Automatic enrolment, Commentary and analysis: April 2016 March article Do you have 50k saved for old age? Average pension pot swells 72% in just two years but men have three times more than women 5 The Pension Regulator, Automatic enrolment, Commentary and analysis: April 2016 March 2017 Types of schemes used by employer size 5 : Less than 30 employees: 99% DC 1% DB/Hybrid 50,000 in the last two years More than 30 employees: 91% DC 9% DB/Hybrid 4

5 3. Picking the right date The new levels will become law on 6 April 2018, but it s unlikely that this date will suit most of your clients. There s a number of things they should consider in order to identify the best date on which to apply the changes. Align with usual payroll dates Applying the increase from the start of a pay period means that your clients won t have to calculate payments based on different levels. If their pay periods do not align with a start date of Friday 6 April 2018 they should consider making the change earlier. Typically this means making the change from the first day of the pay period that includes 6th April. For example, they could apply the change from 1st April 2018 if they use calander month pay periods, or from Monday 2nd April 2018 if they use weekly pay periods starting on Mondays. Align with the benefit window or other key business dates If your client has an annual window for making changes to pension and benefit arrangements it could make sense to apply the new rates from this date and simplify their administrative tasks. Consider the cyclical automatic re-enrolment dates If your client s cyclical automatic re-enrolment date is near 6 April 2018 they may want to apply the increased on the re-enrolment date in order to simplify their communication and administrative tasks. Meet existing contractual commitments The Pensions Regulator originally communicated that the first period of s phasing would begin on 1 October This was subsequently changed to 6 April 2018 to align with the start of the tax and payroll year. Some employers may have communicated 1 October 2017 as their chosen phasing date to employees as part of their initial auto-enrolment communications, and/or may have included this in employment contracts. If you have clients that have committed to dates for phasing in their contract of employment you should advise them to speak to an employment lawyer. Remember, postponement cannot be applied to phasing. Any decision to increase s earlier than the phasing dates may require employee consultation. Standard Life cannot give advice on this, so if the employer is in any doubt, they should consult an employment lawyer on this matter.

6 4. Deciding on the new structure To remain a qualifying scheme, your clients must apply the new minimum levels by April However, they have options around how they do this. Understand if the structure needs to change There are four pensionable pay options and the minimums are different for each pay basis. Date Effective To 5 Apr Apr Apr 2019 From 6 April 2019 Qualifying Band Earnings or Own definition (at least equal to basic pay and 85% total pay) Basic Pay Total Pay 1% 1% 2% 2% 1% 3% 1% 1% 2% 2% 3% 5% 3% 3% 6% 2% 3% 5% 3% 5% 8% 4% 5% 9% 3% 4% 7% Your clients need to check that their current structure meets at least the minimums for If not they will need to increase payments for qualifying members of the scheme. Decide on the employer/employee split Your client must pay at least the minimum employer amount shown in the table above. However they may want to pay all or some of the employee increase too. Decide whether to pay more than the minimums Employees are becoming increasingly aware of what their employers are contributing to their pension. A recent survey suggested that over 2/3 of people consider employer pension s as important when looking for a new job. For clients who operate in a competitive job market, having a quality pension scheme is likely to be a key factor in a prospective employee s decision to accept a job offer. You may also want to discuss the benefits of a matching structure arrangement. This may be something that your client is willing to consider and it s likely to have a positive impact on their employees outcomes with only a little additional cost to their business. Remember, the increase needs to apply to all members who are in the scheme on a qualifying basis, but not everyone is going to be impacted by it in the same way. Putting plans in place for people who may need or want to be exempt from these changes should make life easier for your client and their employees. For example, if your client has employees who are at risk of exceeding the Lifetime Allowance they should decide in advance how to manage this. They should consider things such as whether they re willing to provide an alternative form of remuneration for these employees, or if they ll accept reduced s and allow those employees to remain in the scheme on a non-qualifying basis.

7 5. Getting the right process and data in place It s important that your clients start to prepare early as some of the processes may be more complex than they think. They will also need to understand the impact on their existing processes and data. Engage with payroll Your client should speak to their payroll provider well in advance to understand their processes for phasing and what support they can provide. Each payroll provider will decide on their own approach so you or your clients should speak to their provider as soon as possible to understand what actions they have to take. Don t assume the payroll software or service will apply any increases automatically, it will have the capability for applying any revised rates but it is the employer s responsibility to formally set and notify payroll. Remember, it s still your client s responsibility to make sure they re using a qualifying scheme for their auto-enrolment duties, and that the right amount of pension s are deducted. The Pension Regulator requires pension providers to monitor pension scheme s to ensure the correct amounts are paid in a timely manner. This monitoring has been extended to include ensuring phasing increases are applied. If payments or phasing are applied late employers could be reported to the Regulator and that could lead to enforcement actions and /or fines for the employer. Update the pension payment schedule Standard Life is not making any changes to its payment processes for phasing. So the majority of our clients should continue to use the same payment file and submit any changes to it as normal. We will expect them to update their payment file to reflect their new structure by 6 April 2018 at the latest. There are a few employers that will need to take additional steps. However this only impacts about 10% of our active qualifying workplace pension schemes. For example: 1. Fixed schemes where Standard Life manages the collection of these s through traditional direct debit. These employers will need to carry out an ad-hoc renewal process which involves submitting a file on Group Pension Zone with each employee s percentage. 2. Stanplan A schemes if the basis is changing, these employers will need to tell us so we can update the legal documentation and issue it back to them to sign. Special Rules and Member Summary documents must reflect the current structure. 3. Legacy contracts these employers will also need to carry out an ad-hoc renewal process on Group Pension Zone. This will ensure that employees illustrations reflect the most accurate, up to date information. Your clients should be familiar with these processes, but we ll write to them to outline the steps they need to take. Recertify the scheme If you have any clients that are not using Qualifying Earnings as their basis, they will need to re-certify with The Pensions Regulator. It may be worth discussing salary exchange (also known as salary sacrifice) with your clients as it can be a great way to off-set the additional costs for both the employer and employee. However, remember that the employee needs to agree to salary exchange and it s largely governed by employment law.

8 Hilary Smith 30 Lothian Road Edinburgh EH1 2DH Dear Hilary, Joining our pension scheme was your first step towards a better lifestyle in retirement and the beginning of a team effort to get you there. Now it s time to build on this together by saving more. Employee's minimum Employer's minimum Total minimum Employee's minimum Employer's minimum Total minimum Saving just 2% more will have a small impact on your current earnings, but it will make a big difference to how much you get back at retirement. Check the leaflet to find out how. Nothing, the increase will happen automatically. You don t need to do anything. On your payslip, you ll see your s, as well as what we ve added. You won t see your tax relief. Employee's minimum This additional amount is put into your pension pot separately. Employer's minimum Total minimum Yours sincerely, Mark Day Continued over... HR Director We will help by increasing our s paid into your pension to 2%. The Government will also support you by offering income tax relief on your s. All these will be giving your future a huge boost. If you have any questions about auto-enrolment minimum s increases, please contact our pension team at: Phoenix House 1 Bluebell Glade Reading Berkshire RG1 1NX Or if you have questions regarding your workplace pension, please contact Standard Life call centre at: available Monday to Friday from 9am to 5pm Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Standard Life Assurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. GEN2996B Standard Life Aberdeen, images reproduced under licence. All rights reserved. Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Standard Life Assurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. GEN2996D Standard Life Aberdeen, images reproduced under licence. All rights reserved. 6. Communicating to employees At Standard Life we believe that phasing is an opportunity to help members take the right next step for their retirement and ensure they value the money your clients are paying into their pension. Decide on a communication strategy You should speak to your clients to agree who they want to communicate the increase to and when. There is no legal requirement for your clients to do this, but we believe it s good practice and something they may want to consider doing. Prepare communication materials We have produced some letter templates that are available on Group Pension Zone that you can use to prepare the letters or s for your clients employees. These letters have been extensively tested to ensure that the messages are clear and land positively with members. High It s time to step up for your future 1 By law, from 6 April 2018, pension s are required to increase to a total minimum of 5% (3% employee minimum and 2% minimum employer s). The power of saving just 2% more What s changing? The minimum amount saved into your workplace pension, both by you and by us, will increase. Here s how the new combined s will work. Before Now Prior to 6 April April 2018 to 6 April % 1% 2% 3% 2% 5% In the future From 6 April % 3% 8% 2 3 You re not on your own. We are all helping in the step up. What do you have to do? Tip: Use the retirement calculator to track your progress towards reaching your goals. It s time to step up for your future High Saving just 2% more now will move you closer to the retirement you want in future. By law, the amount saved into your workplace pension, both by you and by us, will increase from 6 April 2018, to a total minimum of 5%. Ask You re not on your own. We are all helping in the step up. You 3% + + Tax Us 2% relief Employer It s likely that different employee groups will have different information needs so you may also want to prepare specialised communications for those with specific needs, such as clients who are in danger of exceeding the Annual, or Lifetime Allowance. We will also update your clients pension websites and any member communication to reflect the new levels from 6 April Engage employees with their pension We believe that re-engaging scheme members is key to help them plan for the future. Putting engagement plans in place to boost awareness and drive more engagement can help drive positive behaviours. To help with this we ve designed a suite of ready-to-go engagement materials that your clients may want to use around the workplace. These can be co-branded with your, or your client s, logo and are free to download from standardlifeworkplace.co.uk/phasing Despite the success of auto-enrolment in terms of numbers saving, engagement remains low. 23% don t know employer makes s Over 1/5 have never reviewed their pension

9 Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Standard Life Assurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. GEN Standard Life Aberdeen. Images reproduced under licence. All rights reserved.