Workplace Pension Reform Gordon Birrell ChieneTait Financial Planning

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Workplace Pension Reform Gordon Birrell Chiene+Tait Financial Planning Ltd 1

Workplace Pension Reform Gordon Birrell Chiene+Tait Financial Planning Ltd 1

Agenda Background to reform Auto enrolment New employer duties The choices Funding considerations The

Agenda Background to reform Auto enrolment New employer duties The choices Funding considerations The need to plan ahead 2

State spending on pensioners 2006/7 £ 84. 6 Billion Source: Pension Policy Institute 2035/36

State spending on pensioners 2006/7 £ 84. 6 Billion Source: Pension Policy Institute 2035/36 £ 189. 1 Billion (estimated) 3

Statistics 60% of workers are NOT saving enough or anything for retirement 80% of

Statistics 60% of workers are NOT saving enough or anything for retirement 80% of small businesses employing fewer than 250 employees do not offer a workplace pension scheme, affecting around 7. 7 million workers Working population is shrinking People are living longer Spend now culture…. 4

What is Auto Enrolment ? “Auto-enrolment is the term used that will mean workers

What is Auto Enrolment ? “Auto-enrolment is the term used that will mean workers are automatically enrolled into their employers qualifying pension scheme without any active decision on their part”. 5

Why Join ü State pension insufficient ü Employer contributes ü Full tax relief on

Why Join ü State pension insufficient ü Employer contributes ü Full tax relief on contributions ü Tax free growth and tax free lump sum ü Trivial amounts as a lump sum ü Independent from state pension 6

Why Join - ISA versus Pension £ 100 pm into ISA Total paid in

Why Join - ISA versus Pension £ 100 pm into ISA Total paid in £ 30, 000 Assumed 5% growth £ 59, 551 £ 100 pm into pension Grossed up to £ 125 pm Employer doubles contribution £ 250 pm Total paid in £ 112, 500 Assumed 5% growth £ 224, 598 *term assumed to be 25 years 7

New Employer Duties The Pensions Act 2008 Section 3(2) “The employer must make prescribed

New Employer Duties The Pensions Act 2008 Section 3(2) “The employer must make prescribed arrangements by which the jobholder becomes an active member of an automatic enrolment scheme…. ” 8

Employer duties Employers must: Have a suitable qualifying pension scheme Provide information to eligible

Employer duties Employers must: Have a suitable qualifying pension scheme Provide information to eligible and non eligible jobholders Auto enrol and re-enrol eligible members Make pension contributions for eligible workers Deduct payments from workers Enrol other employees at their request Register scheme and meet Regulator reporting requirements Keep records – 4 to 6 years 9

Employer duties Employers must NOT: Offer advice Discourage membership Offer inducements Encourage opt outs

Employer duties Employers must NOT: Offer advice Discourage membership Offer inducements Encourage opt outs Give jobholders the opt out form 10

Compliance - The Pension Regulator Formal notice Fixed penalties Escalating daily penalty Imprisonment –

Compliance - The Pension Regulator Formal notice Fixed penalties Escalating daily penalty Imprisonment – up to two years New employment laws Important to get things right…… 11

The basics Nominate a contact point with TPR – now! Your staging date Develop

The basics Nominate a contact point with TPR – now! Your staging date Develop a workable plan Assess your workforce Review current arrangements Staff communication - pre and post staging Auto enrol, register and on-going compliance Record keeping 12

Staging Dates Staggered – largest employers first 40 + staging dates based on PAYE

Staging Dates Staggered – largest employers first 40 + staging dates based on PAYE records Majority between January 2014 – April 2017 One year advance notice Check online – ‘staging dates auto enrolment’ 13

Assessing your workforce Non-eligible jobholders Entitled Workers Aged 16 -74 Work in UK Earning

Assessing your workforce Non-eligible jobholders Entitled Workers Aged 16 -74 Work in UK Earning below £ 5, 668 Have a right to join Aged 16 -21 or SPA-74 Work in UK Earning above £ 9, 440 Or Aged 16 -74 Work in UK Earning above £ 5, 668 but below £ 9, 440 Have a right to opt in Eligible jobholders Aged 22 -SPA Work in UK Earning above £ 9, 440 Must be automatically enrolled Workers Contract of employment (an employee) Or Have a contract to perform work outwith their own business 14

Ongoing assessment Pay reference periods Birthdays Reviewable thresholds Postponement Deferment Opt outs 15

Ongoing assessment Pay reference periods Birthdays Reviewable thresholds Postponement Deferment Opt outs 15

Opting out Employees can opt out Re-enrolled after three years Forms cannot be provided

Opting out Employees can opt out Re-enrolled after three years Forms cannot be provided by employer Fines of up to £ 50, 000 for coercing employees Reporting requirements to the Regulator 16

Qualifying workplace pension scheme “QWPS” 8% Qualifying earnings minimum Of which 3% Qualifying earnings

Qualifying workplace pension scheme “QWPS” 8% Qualifying earnings minimum Of which 3% Qualifying earnings Employer minimum (Qualifying earnings - £ 5, 668 to £ 41, 450 for 2013/14) 17

Self certified options – After phasing Three acceptable definitions Minimum 9% of pensionable pay

Self certified options – After phasing Three acceptable definitions Minimum 9% of pensionable pay (4% employer) (pensionable pay must be at least basic pay) Or Minimum 8% of pensionable pay (3% employer) provided at least 85% of total pay is pensionable Or Minimum 7% of pensionable pay (3% employer), provided that total pay is pensionable 18

Contribution phasing – Certified route Duration Employer minimum Employee Minimum Total Staging to 30/09/2017

Contribution phasing – Certified route Duration Employer minimum Employee Minimum Total Staging to 30/09/2017 1% 1% 2% 01/10/2017 to 30/09/2018 2% 3% 5% 01/10/2018 onwards 3% 5% 8% A false sense of security……… 19

Review existing pension provision Fit for purpose Default funds and life styling Structure and

Review existing pension provision Fit for purpose Default funds and life styling Structure and charges Paper free entry Eligibility Waiting periods Definitions of pay 20

Types of pension scheme Defined Contribution N. E. S. T Final Salary 21

Types of pension scheme Defined Contribution N. E. S. T Final Salary 21

Choice of scheme provision Defined Contribution QWPS NEST Final Salary 22

Choice of scheme provision Defined Contribution QWPS NEST Final Salary 22

National Employment Savings Trust “NEST” ü ü Simple Uses qualified earnings Useful for Seasonal

National Employment Savings Trust “NEST” ü ü Simple Uses qualified earnings Useful for Seasonal and Temps Set up by Government x x x x Initial charges Administration not proven Investment return No Employer support tools No Employee engagement tools No Employee communication Contributions capped Cannot transfer 23

Private Provision - QWPS Proven and automated administration One portal /two scheme development More

Private Provision - QWPS Proven and automated administration One portal /two scheme development More cost effective Greater investment choice Greater individual employee control Greater provision to Independent Advice 24

Defined benefit schemes Deficit funding Options to cap and reduce liabilities Auto enrolment impact

Defined benefit schemes Deficit funding Options to cap and reduce liabilities Auto enrolment impact Increased National Insurance 25

The Pensions Trust Issues with Growth Series Cap increasing liabilities Reduce or eliminate deficit

The Pensions Trust Issues with Growth Series Cap increasing liabilities Reduce or eliminate deficit Avoid crystallised debt Better alternatives for employers and employees Take INDEPENDENT advice 26

Who pays ? Financial and Administrative Impact : Possible outcomes: Reduce spend / Staff

Who pays ? Financial and Administrative Impact : Possible outcomes: Reduce spend / Staff numbers Increase turnover or income to cover costs Reduce Salaries – (Employment law) Plan ahead 27

Forward Planning - Funding Salary negotiations Pension in exchange of pay rise Meet minimum

Forward Planning - Funding Salary negotiations Pension in exchange of pay rise Meet minimum requirements in time Avoid perception of additional tax on pay…. . 28

Salary Sacrifice More efficient Employer national insurance savings Employee income tax and national insurance

Salary Sacrifice More efficient Employer national insurance savings Employee income tax and national insurance savings Option to increase pension contribution or employer windfall Other benefits still at pre sacrifice levels Bear in mind the drawbacks…. . seek advice 29

Communication • Satisfy mandatory requirements • Within set time limits • Crucial to promote

Communication • Satisfy mandatory requirements • Within set time limits • Crucial to promote and educate the need to save 30

Summary Don’t leave until the last minute Establish costs and resource Good communication is

Summary Don’t leave until the last minute Establish costs and resource Good communication is key Seek advice 31

Chiene + Tait Financial Planning Ltd Independent advice to Employers Assess options and employer

Chiene + Tait Financial Planning Ltd Independent advice to Employers Assess options and employer readiness Provide most appropriate solutions Implement and promote benefits to staff On-going advice to employer and employees 32

Chiene + Tait Financial Planning Ltd is authorised and regulated by the Financial Services

Chiene + Tait Financial Planning Ltd is authorised and regulated by the Financial Services Authority. This presentation is for information purposes only and is based on our understanding of current legislation which may change. 33