Qualifying Workplace Pension Schemes Guide for Employers April 2014
Introduction The Government s new Workplace Pension regime came into effect from October 2012. The new rules mean that every employer must automatically enrol their employees into a qualifying scheme. Each employer is assigned a staging date according to the number of employees in the business, ranging from October 2012 to April 2017 for businesses in existence in October 2012. This much is well known... So what are the real implications for employers and how soon do they need to start preparing? In our Employer Guide, we will explain your obligations and highlight the key decisions you ll need to make. Your new duties will include: Providing a qualifying workplace pension scheme (QWPS) that meets the new quality standards. Establishing employees status and ensuring that eligible employees are members of the QWPS. Making sure that the right communications are sent to relevant employees at the right time. Understanding which employees have opted out of, or into, the QWPS. Making contribution payments at the required level for employees who have not opted out of the QWPS. This guide provides a number of checklists to help you measure your progress in getting ready for your staging date and in enrolling your staff. However, we are here to help our clients through the decision stages and the auto-enrolment process, so whenever you need our help, contact us. For more information about the content of this guide, please contact us at: Almary Green Investments Ltd Greenfields House 10 Meridian Way Meridian Business Park Norwich NR7 0TA Tel: 01603 706740 Email: enquiries@almarygreen.com Web: www.almarygreen.com Employer Guide to Auto-Enrolment 2 April 2014
Checklist 1: Preparation There are some key decisions to be made about your involvement in the new Workplace Pensions regime. This first checklist will help you decide when you should start to autoenrol your staff, what changes you should make to your staff pension entitlement rules and what terms you will need to include in your employment contracts. 1. Staging Date The date on which you must start auto-enrolling your staff into a Qualifying Workplace Pension Scheme is called your Staging Date. You can find details of your staging date by visiting our website at http://www.almarygreen.com/corporate/employee-benefits/automatic-enrolment. The Pensions Regulator will give you a year s notice of your staging date. You can bring your staging date forward if you so wish. You just need to give the Pensions Regulator at least one month s notice. Identified your staging date? Record it here:... Decide whether to bring forward your staging date Yes No If yes, when will you need to notify the Pensions Regulator?... Do you operate multiple PAYE schemes? Yes No If yes, align your staging dates across all parts of your organisation (unless there s a valid reason not to) 2. Waiting Periods You can apply a waiting period of up to three months to help fit your new duties in with your payroll process and way of working. Do you want to use a waiting period at your staging date? Yes No If yes, decide your waiting period strategy Decide if you want to apply a waiting period to new employees and/or when existing employees first become eligible. 3. Pay Reference Period The pay reference period is crucial to establishing employee eligibility and minimum payments. Identify the pay reference period for each employee Establish a process to capture employee data for each pay reference period 4. Joining Process A waiting period can give flexibility to use a joining process that suits your business (such as contract of employment, flexible benefits election or application as well as auto-enrolment). Employer Guide to Auto-Enrolment 3 April 2014
Decide which joining methods you will use going forward Establish a strategy for current non-members Agree a process to capture employee investment choices and payment levels for those who don t want to use the default bases 5. Employment Contracts You may need to change employment contracts for new and existing employees to meet your pension duties in a way that works for you. Review contracts for existing employees and agree changes as necessary Revise contracts for future employees to fit your preferred way of working (eg to accommodate contract join or salary exchange) For contract of employment join, ensure employment contracts explicitly incorporate employees agreement to join the scheme Make any required changes to agency and contract workers contracts Implement any contract changes required for salary exchange Consider any Specialist Employee Groups some employees will need special consideration Review your pension provision for compliance with anti-discrimination legislation (such as age and gender rules) Check pension provision for crossborder employees meets international legislative requirements Agree an engagement strategy for employees with fixed or enhanced protection to highlight the implications of autoenrolment for their protection Glossary: Staging date: the date on which you must start auto-enrolling your staff into a Qualifying Workplace Pension Scheme Waiting period: a delay between your point of eligibility and being auto-enrolled to a maximum of three months. This might be applied, for example, to new employees who might be required to be with the business for a three month period before they can join the pension scheme. However, if the worker is between 16 and 75 and wants to join immediately, he or she can do so. Pay reference period: usually the period of time for which a worker s salary is paid (eg a week, a month, etc) Contract join: the start date for the contract Salary exchange: an arrangement between an employer and an employee where the employee forgoes part of their pay for a corresponding employer contribution to the pension scheme. Fixed or enhanced protection: an arrangement where pension savings are safeguarded against a tax charge when there is a potential liability that the fund value will exceed the lifetime allowance. Employer Guide to Auto-Enrolment 4 April 2014
Checklist 2: Plan Design, Certificate and Governance Getting the right qualifying scheme for your business is a critical first step. There are a number of possible routes you can follow: your existing scheme may be able to be adapted to meet the requirements, you can arrange a new scheme with a pension provider or you can choose to use a large national scheme such as NEST or a combination of providers. 1. Choosing your Qualifying Workplace Pension Scheme (QWPS) You need to provide a QWPS for your eligible employees, with auto-enrolment functionality for new entrants. Choose your preferred QWPS vehicle(s) going forward Establish auto-enrolment functionality and a default fund where necessary Decide if you are using a single provider or multiple providers (eg GPP and NEST) Consider whether to run any existing schemes as closed QWPS Review existing schemes to ensure they meet the quality standard Restructure/consolidate legacy schemes for economies of scale 2. The Quality Standard There are different quality standards, giving you flexibility to choose one that suits your business. Agree whether to use different bases for different employee groups or the same basis for everyone Determine your payment structure(s) going forward, including whether and how to phase in any payment increases needed to meet the minimum standards Decide which definition of pensionable pay you ll use Decide whether to allow employees to participate in your scheme on a non-qualifying basis and establish a process to record them If using basic pay, ensure it includes regional allowances and statutory payments Establish a process to ensure the correct payments are made 3. Pension Salary Exchange Using salary exchange can help reduce pension costs for you and your employees. Decide whether to use salary exchange (it may not be suitable for your lower paid employees) Review employment contracts to support your chosen salary exchange process (both for current and future employees) Establish a process to implement salary exchange (eg default by contract of employment or Maintain a process for non salary exchange for those employees to whom it doesn t apply or for Employer Guide to Auto-Enrolment 5 April 2014
voluntary election) whom it isn t appropriate 4. Certification Unless you re confident that the payment basis of your QWPS meets the default qualifying earnings quality standard, you ll need to periodically check that it meets an alternative standard. Establish a process to satisfy yourself that your QWPS is likely to meet the alternative standard(s) over the period of your certificate Decide how often you wish to conduct a quality check (at least every 18 months) Ensure your initial certificate is produced within a month of your staging date (or the end of your waiting period) Establish a process for checking that sufficient payments have been made Ensure your certificate is renewed within a month of the old one expiring 5. Record Keeping Maintaining complete and accurate records is key to meeting your duties. Identify the records that must be kept to meet legislative requirements Implement a process to store records for six years Record employee joining dates and status Establish and document the joining window Establish and document the opt out period Store full details of any opt out notices received Maintain records of all payments to and from your scheme Glossary: GPP: Group Personal Pension Scheme NEST: National Employment Savings Trust a pension fund set up by the Government that will be managed like a trust-based defined contribution occupational pension scheme, subject to the existing regulatory regime and regulated by The Pensions Regulator. The main difference is that there will be multiple employers participating rather than a traditional single employer. Salary exchange: an arrangement between an employer and an employee where the employee forgoes part of their pay for a corresponding employer contribution to the pension scheme. Opting out: the decision by an employee to decline involvement in the workplace pension scheme. Employer Guide to Auto-Enrolment 6 April 2014
Checklist 3: Eligibility Assessment The rules surrounding the eligibility of those who work in your business are complex. Whether permanent or temporary, employed or self-employed, anyone meeting the jobholder criteria will need to be auto enrolled. Importantly, record keeping should be meticulous so that all decisions about eligibility can be supported. 1. Worker Identification You need to review the status of all your UK workers, to identify those for whom you need to assess eligibility and to identify your pension duties. Identify worker types: Permanent employees Agency workers and temps Contractors and self-employed individuals Special groups eg international employees, those on maternity, long term sick, unpaid leave, career breaks etc Establish a process to monitor changes in employment status that might affect your duties Ensure necessary information is stored to meet record keeping requirements 2. Eligibility Assessment At your staging date and every pay reference period after then, you need to check the eligibility of any workers who aren t in your QWPS. Agree a process to obtain employee data from payroll each pay reference period Identify any action needed for those not currently in your QWPS If eligible jobholders, need to join your QWPS Entitled workers can join your pension scheme Employees in waiting period: monitor joining date and opt ins If non-eligible job-holders, can opt in to your QWPS Employees who have opted out: monitor re-enrolment duty Ensure necessary communications are issued (see Checklist 5) 3. Non-Employed Workers Workers who aren t employees but are identified as being relevant to your pension duties bring extra administrative challenges you need to plan for. Introduce an authorisation process to identify expenses or other payments (such as materials) that don t count as qualifying/pensionable earnings Establish a process to identify qualifying/pensionable earnings Review invoice payment dates and align with assessment dates Employer Guide to Auto-Enrolment 7 April 2014
Agree how VAT interacts with your pension duties/process Create a process to deduct pension payments for nonemployed QWPS members when due and reconcile them with invoices Glossary: Jobholder: a worker in the business not necessarily an employee. An eligible jobholder is a worker aged between 22 and the State Pension Age with earnings above the standard personal tax allowance Joining date: the date on which a worker joins the business (which is the start date for any waiting period) Opting out: the decision by an employee to decline involvement in the workplace pension scheme. Qualifying/pensionable earnings: those that fall between a specific band of the National Insurance Primary Threshold ( 5,772 and 41,865 per year in 2014/2015). Includes basic pay along with commission, overtime, bonus and statutory payments such as sick pay and maternity pay. Assessment date: date on which workforce is assessed for eligibility for auto-enrolment. Employer Guide to Auto-Enrolment 8 April 2014
Checklist 4: Payroll, Data and Systems The accuracy of data and efficiency of HR/payroll systems will play a critical role in ensuring that your QWPS can be successfully managed. 1. Data Exchanges Efficient data exchanges are crucial to the smooth and cost effective running of your QWPS. Identify the data you need to provide each pay reference period and make sure all data from HR and payroll can be collated into a single file for upload Ensure your payroll can provide data in a file type and format compatible with your pension providers systems Ensure your payroll can accept data, such as opt-out reports, from your pension providers systems Ensure your payroll records all opt out details 2. Data Cleansing Maintaining data integrity is core to meeting your duties. Undertake a data audit to ensure your data is correct Ensure all required data is captured and can be retrieved Establish a process to gather the necessary data for new employees, including: Date of Birth National Insurance Number Full address Email address 3. Pay Data It s important that you can identify which elements of pay are pensionable. Identify all payroll elements Review each element to identify those that are pensionable and/or constitute qualifying earnings Establish a process to capture and submit relevant pay data for each pay reference period 4. Making Payments There are strict deadlines for passing payment to your QWPS. Ensure payroll can produce a payment file in the correct format Establish a process to ensure payments are uploaded on an appropriate date and paid across on time Employer Guide to Auto-Enrolment 9 April 2014
Make sure employee payments are deducted from the first payroll run after their enrolment date (even if this is during the opt out period). 5. Refunds on Opt Out If an employee opts out, you have a strict deadline to refund any pension payments taken from their pay. Decide whether to retain payments until the opt out period has ended or whether to pass them to your pension provider(s) If retaining payments, establish a process to calculate, log, date match and reconcile them Ensure the information on the refund file can be integrated with payroll Consider the interaction of refunds with pension salary exchange Ensure payroll can process refunds within the statutory deadline Glossary: Pay reference period: usually the period of time for which a worker s salary is paid (eg a week, a month, etc) Opting out: the decision by an employee to decline involvement in the workplace pension scheme. Qualifying/pensionable earnings: those that fall between a specific band of the National Insurance Primary Threshold ( 5,772 and 41,865 per year in 2014/2015). Includes basic pay along with commission, overtime, bonus and statutory payments such as sick pay and maternity pay. Salary exchange: an arrangement between an employer and an employee where the employee forgoes part of their pay for a corresponding employer contribution to the pension scheme. Employer Guide to Auto-Enrolment 10 April 2014
Checklist 5: Communications This is the biggest change to workplace pensions ever, so it s important to engage your employees and help them value your pension spend. The chief hurdle to the successful implementation of a QWPS in your business is likely to be a lack of understanding. By making sure that key departments (HR, Payroll) understand what is needed and by communicating details of what is involved to staff at all levels, employee engagement should be assured, whatever their entitlements under the scheme. 1. Strategy and Approach Effective communication is key to meeting your duties and operating an effective and efficient pension process. Identify and alert key staff such as HR, communications and payroll Communicate to any special groups for example identify the importance of opting out to those with fixed or enhanced protection Decide if you will use a waiting period Keep a record of communications issued 2. Employee Engagement Getting the message across to all staff will be an important part of your duties. Communicate the how, when and what of the changes to workplace pensions Communicate the benefits of membership of the pension scheme Confirm qualifying status to existing members of your scheme within 2 months of your staging date 3. Assessment Without Waiting Period You have some important communication duties when an employee is due to be assessed at your staging date or thereafter. Provide enrolment information in writing to eligible employees. This should include information about the scheme, payments and opt out rights Give the enrolment information within a month after the enrolment date Provide pension saving information to entitled workers Provide opt in information to employees assessed with right to opt in Provide jobholder information to scheme within one month of enrolment date 4. Using a Waiting Period A waiting period can be applied so the joining date is better suited to your business processes. Employer Guide to Auto-Enrolment 11 April 2014
Determine the waiting period end date in line with your waiting period strategy Communicate to those affected at staging and at any further date within the required time period If relevant, communicate and operate any non enrolment joining processes Decide if you will issue generic information or tailored information specific to the employees assessment category At the end of any waiting period, carry out an eligibility assessment Where the assessment shows the worker as an eligible jobholder, begin the autoenrolment process using the end of the waiting period as the automatic enrolment date Where the assessment shows the worker as an entitled worker or non eligible jobholder, log the worker s status and continue the ongoing monitoring each pay period 5. Opt Out Managing Opt Out communications is key to the joining process. Give information on opt out rights and process to those eligible for enrolment or with rights to opt in Inform the scheme when an employee has opted out 6. Changes of Employment Status A change in the eligibility status of an employee not already participating in your QWPS can trigger new communication duties for you. Establish a process to monitor changes in employment status each pay reference period If a non eligible jobholder or entitled worker becomes an entitled jobholder, issue the enrolment (or waiting period) communication within a month If an entitled worker becomes a non eligible jobholder, issue a communication about opt in rights within a month Glossary: Waiting period: a delay between your point of eligibility and being auto-enrolled to a maximum of three months. This might be applied, for example, to new employees who might be required to be with the business for a three month period before they can join the pension scheme. However, if the worker is between 16 and 75 and wants to join immediately, he or she can do so. Staging date: the date on which you must start auto-enrolling your staff into a Qualifying Workplace Pension Scheme Opt out rights: the eligible jobholders rights to opt out of involvement in the pension scheme Opt in rights: the non-eligible jobholders, entitled workers and opted out eligible jobholders rights to opt into the scheme. Employer Guide to Auto-Enrolment 12 April 2014
Eligibility assessment: a test against which all workers not in the scheme should be assessed to establish if they should be auto-enrolled or opting in is an option available to them. Jobholder: a worker in the business not necessarily an employee. Eligible jobholder: a worker aged between 22 and the State Pension Age with earnings above the standard personal tax allowance Non eligible jobholder: a worker aged 16-21 or between the State Pension Age and 74 with earnings above the standard personal tax allowance or a worker aged between 16 and 74 with earnings above the lower earnings level for qualifying earnings but below the standard personal tax allowance. Entitled worker: a worker aged 16-74 earning below the lower earnings level for qualifying earnings. Employer Guide to Auto-Enrolment 13 April 2014
Checklist 6: Investment and Default Fund Members of a QWPS will have the opportunity to select the funds in which they would like to invest their pension savings. Different providers will offer different investment options: in the main, schemes provided by insurance companies will offer a wider range of choices than a national scheme such as NEST. In all cases, the scheme will need to offer a default option. 1. Deciding on the Suitability of the Default Fund for the Membership Every QWPS needs a default fund suitable for those who don t want to choose their own. Ensure the suitability of the default fund and as far is as is reasonable, take account of the likely characteristics and needs of the employees who will be automatically enrolled into it 2. Designing the Default Fund There are some considerations to take into account when designing the default fund. Set the default fund high level objective Ensure the name of the fund is aligned with the objective Determine if the default fund is appropriately and competitively priced for active and deferred members and charges are not excessive in relation to the services being provided 3. Managing Risk Asset Allocation and Investment Strategy Thought should be given to managing risk to achieve the best outcome for members. Check the default fund s investment strategy manages risks through the appropriate and diversified allocation of assets Check that the investment strategy reflects the overall objective of the default fund and the balance between risk and growth potential Check the investment strategy takes into account the retirement profile of members (number of years from retirement age) Ensure members are not locked into the default fund 4. Monitoring the Performance of Funds within the Default Fund The default fund s performance should be monitored and reviewed. Ensure there is a timetable and process for reviewing the fund in accordance with The Pensions Regulator s requirements: Ongoing suitability of the default fund Ongoing suitability of the charge level The investment strategy of the fund The performance of the fund Employer Guide to Auto-Enrolment 14 April 2014
If the performance is consistent with the overall objective of the default fund 5. Communicating Information about the Default Fund to Members Members should be carefully informed about the default fund. Ensure you have communicated key details of the default fund: A description of the default option A disclosure of the charging structure A statement of the overall objective of the default option with an indication of the risk profile An explanation of how the objective is going to be achieved, including an explanation of what funds have been chosen and why An explanation of the investment strategy, what it aims to achieve and how it manages risk, particularly as a member nears retirement A statement setting out the roles and responsibilities of decision makers in relation to the fund Clear signposting on how to request further information Glossary: Default fund: a selected fund into which pension savings are invested if no other choice is made by the employee. Must be broadly suitable for a typical employee. Deferred members: workers who are eligible for auto-enrolment but subject to a waiting period. Asset allocation: the different geographical areas and investment sectors across which pension savings are spread. Investment strategy: the overall strategy for the investment Risk profile: the measured level of investment risk that is implicit in the investment. Employer Guide to Auto-Enrolment 15 April 2014
Checklist 7: Triennial Review and Ongoing Processes The new rules require businesses to regularly monitor changes that might impact on eligibility. New employees need to be added to the scheme and those employees who have opted out or who are entitled workers should have the opportunity to opt in, if they want it. Every three years, those eligible jobholders who have opted out must be re-enrolled into the QWPS, whereupon they can again opt out if they so wish. 1. Ongoing Eligibility Assessment Every pay reference period, you need to check the eligibility of any employees who aren t already in your QWPS. Build pension eligibility assessment into your new employee process Monitor changes in work status (agency to permanent employee, returns from overseas, etc) Take appropriate action if eligibility has changed Ensure that communication requirements are met 2. Opt Ins and Entitled Joiners It s important that you have a compliant and efficient process for employees who join your scheme voluntarily. Introduce a process that enrols individuals who want to opt in and that starts member and (if appropriate) employer payments Decide an approach for dealing with opt in requests made within a year of a previous opt out Designate a person responsible for dealing with opt in notices Ensure opt in notices are valid Ensure payroll and pension providers are made aware of any valid opt in notices Log the date all opt in notices are received Log the date active membership begins Ensure a pension scheme is in place for entitled workers who submit a joining notice and a process in place to collect and pay their pension payments (employer payments are not a requirement for entitled workers) 3. Opt Outs and Refunds Managing the opt out process efficiently is an important part of running your QWPS. Establish a process for obtaining and reviewing opt out notices Ensure opt out communications are issued on time (see checklist 5) Advise the employee if an opt out notice is not valid and extend the Log the date and details of valid opt out notices Calculate the refund due on receipt of a valid opt out notice Employer Guide to Auto-Enrolment 16 April 2014
joining window by two weeks and ensure it is paid on time Where applicable, calculate any retained payments due on refunds Establish a process for dealing with late opt out notices 4. Re-Enrolment Roughly every three years you must carry out an exercise to re-enrol most eligible jobholders who aren t members of your QWPS. Choose a triennial re-enrolment date that fits your payroll cycle or flexible benefits window (within the six month window) Create a process to carry out the re-enrolment exercise every three years Exclude opt outs within a year of your chosen date from the re-enrolment exercise Maintain records to evidence the re-enrolment obligations have been satisfied Glossary: Entitled worker: a worker aged 16-74 earning below the lower earnings level for qualifying earnings. Opt in notice: formal notification from the worker that he or she would like to opt into the scheme. Opt out notice: formal notification from the worker that he or she would like to opt out of the scheme. Eligible jobholder: a worker aged between 22 and the State Pension Age with earnings above the standard personal tax allowance Joining window: the period allocated to allow the worker to decide if they want to opt out. Employer Guide to Auto-Enrolment 17 April 2014