Archive for the ‘Compulsory pensions’ Category

Busy week for pensions

avatar Posted on March 22nd, 2013 by David Gallagher

It has been a busy week for the pensions industry, with the Budget making a number of changes and for us, as a pension team, hosting a workshop on compulsory pensions.

First, in the budget the government announced that it will bring forward the introduction of the new flat-rate state pension.  This is expected to save approximately £5.5 billion per year.  It will also mean that, for those people with contracted out pension schemes, that the abolition of contracting out will come a year earlier – it is the 3.4% National Insurance rebate that these schemes get that gives rise to the £5.5 billion saving.  In other words, this is a tax increase for employers with contracted out pension schemes.

As expected, the government confirmed that it was going to give the Pensions Regulator a new statutory objective designed to take into account employer’s needs when determining scheme funding.  Less expected were the convoluted terms of this objective which are “To support scheme funding arrangements that are compatible with sustainable growth for the sponsoring employer and fully consistent with the 2004 funding legislation.”  This is far more wordy than the original proposal and suggests that a number of compromises have been made to take into account other people’s views.  This seems unnecessary and unhelpful, as all the objectives that the Regulator has have to be balanced anyway. It does at least give some credence to what the Regulator was already doing in practice, namely taking employers’ interests into account in setting appropriate funding programmes for final salary pension schemes in deficit.

The government has decided not to allow for the smoothing of assets and liability values in pension scheme valuations.  This was expected, as the industry had heavily criticised the suggestion that it could be introduced.  This was an actuarial technique which was permitted 20 years ago but which was found in practice to give too much room for variation and the ability to hide bad news. 

Earlier this week, we hosted our client workshop on compulsory pensions.  These have been coming into force since October 2012 and through to 2017, depending on the size of employer.  We covered a range of practical situations, including dealing with employees who join mid-month and calculating whether employees with fluctuating earnings need to be automatically enrolled into a compulsory pension scheme.  Here are our briefing notes on Auto-enrolment – Using an existing UK defined benefit or hybrid scheme and Auto-enrolment – Using an existing UK money purchase scheme, together with our slides.   If you would like further information about compulsory pensions, please do not hesitate to contact me.

They’re Compulsory Pensions not Auto Enrolment

avatar Posted on October 4th, 2012 by David Gallagher

What is in a name?  Well, on 1 October 2012 the government’s new compulsory pensions system went live. As you’ll know from our briefing notes or the impressive volume of press coverage this week, it affects the largest employers first with a 6 year rolling programme of “staging dates” to gradually involve all employers.

Lots of press coverage calls the new regime “auto enrolment” and there’s even a clever little logo to go with that name. You may have seen it – it looks like 3 pound coins next to each other, which is interesting as the average contribution for the target population is about £3 a week.

But the name is dangerously misleading for employers. There is nothing automatic about the new system for them. Most employers need to make changes to payroll systems, to recruitment processes, to employee data collection, to contracts (for employees and contractors and with employment agencies) handbooks, to existing pension schemes. Then they need to identify and make special provision for those not yet 22 years old, or who earn under the pay threshold, or who have already built up a substantial pension that has HMRC protection.

None of this is done for them; nor is there any financial assistance available. The costs of implementation may well create more strain than the 1% of part of the employee’s pay that is the compulsory contribution.

It is true that enrolment will be automatic for the employees and in that sense the name is accurate. But that would have been the case if the changes had come in by making it compulsory to pay into the stakeholder schemes that almost all employers have to designate. And that would have been a lot less work for everybody.

Brighton ideas – The Regulator’s stated approach to automatic enrolment

avatar Posted on March 9th, 2012 by Caroline Casbolt

Automatic enrolment is a hot topic. Starting with the largest in October 2012, employers will be obliged to enrol most of their employees into a pension scheme and to pay money towards their pension (click here to view the staging dates). This is the first time that the UK will have had compulsory pensions in this way and the Department for Work and Pensions estimates that it will result in between 5 and 8 million people newly saving or saving more in workplace pensions, with extra contributions of £9 billion annually from 2020.‬

The Brighton-based Pensions Regulator has the tricky job of enforcing these rules on employers, many of whom will have had no contributory pension for their staff before. The Regulator has now published its approach to delivering successful automatic enrolment. In its own words, it has a key role, working with all parties involved, to make automatic enrolment a success.

Its stated aims are to maximise compliance by employers with their automatic enrolment duties (through the Regulator’s “Educate, Enable and Enforce” approach) and encourage those providing workplace pensions to supply safe, durable and value for money vehicles. And it has developed five strategic principles which will provide the framework for its regulatory approach, policies and practices.

The Regulator has indicated that it will take a graduated approach to enforcement, which may involve using warnings, notices or penalties. Criminal prosecution will be used in the most serious cases, for example wilful failure to auto-enrol. A person guilty of an offence may be liable to imprisonment for up to two years or a fine or both.

While the Regulator’s intentions are good, this approach is somewhat surprising given that in 2000, the old pensions legislation was changed so almost all breaches had penalties under civil law, specifically to remove the burden of carrying out intensive investigations. It remains to be seen whether the Regulator will have sufficient resources to identify serious cases before investigating (a very difficult chicken and egg situation) and then collect evidence to a criminal standard to successfully prosecute cases. Look out for further information from the Regulator on its compliance and enforcement strategy this spring.

Given the Regulator’s guidance and the forthcoming staging process, it is vital that employers use the coming months to prepare for automatic enrolment and the many challenges that it will bring. We are holding interactive workshops on compulsory pensions on 21 March 2012 (London) and 22 March 2012 (Manchester). If you would like to attend one of these workshops, please click here to register your interest.

Government announces revised timetable

avatar Posted on November 29th, 2011 by David Gallagher

Today (29 November 2011) the Government has announced that the staging dates for many employers will be postponed. For employers with 3,000 or more employees, their staging dates will remain the same and these are between 1 October 2012 and 1 July 2013, depending on size of employer payroll.

For those with at least 50 but less than 3,000 employees, they are to move to a new date which is designed to smooth the transition of automatic enrolment. These dates have not yet been specified and the Department for Work and Pensions expects to provide more detail in January 2012. For those with less than 50 employees staging dates have been postponed until at least after the end of the current Parliament, so May 2015 at the earliest. Employers who first become liable to account for PAYE income tax after 1 April 2012 will also be postponed until after the end of the current Parliament.

For all employers the switch to higher rate employer contributions from the initial 1% rate will be postponed. Higher rate contributions will only come into effect once every single employer has passed its staging date.

We will again update our Blog once more information is available.

Compulsory pensions – action planning for employers

avatar Posted on November 2nd, 2011 by David Gallagher

Following our earlier post on compulsory pensions, we have now published a project planning guide. The guide sets out how far back in time an employer needs to start preparing for compulsory pensions. Further briefing notes will be made available in due course.

2012 starts here – compulsory pensions

avatar Posted on October 20th, 2011 by David Gallagher

Some of you will have heard about Britain’s new compulsory pension law coming in next year.  The law comes in on a staged basis with the biggest employers affected first in October 2012 – and the government calls the date when the law applies the “staging date”.  Some employers with less than 50 employees may not be caught until 2016, with monthly staging dates for employers throughout that 4 year period.

We are getting to the time where employers have to start planning, reviewing HR and payroll systems and budgeting for the costs involved so the pensions team at FFW are writing several different briefing notes.  The first important point is to find out your staging date – you can do that here.  Beware, although these have been published there is lobbying to push some of the dates further back especially for those with small workforces.

Our briefing notes are going to cover a general introduction, a project planning guide, one on who is and is not an eligible employee, one on what schemes qualify and some of the technical detail on what pay and benefits count and how they are calculated.  The project planner will be available next week, but some of these guides will have to wait because the government are looking at the detailed regulations again.  For instance, they are working on how to treat non-UK workers who are seconded or temporarily working here.