Automatic Enrolment webinar - Systems & Schemes

1. Automatic Enrolment webinar- Systems & Schemes Welcome 26th September 2013

2. Automatic enrolment Since the recording of this webinar there have been a number of changes: • registration is now referred to as “declaration of compliance” 24 June 2014 • changes in legislation - 1 April 2014 • The principles described in the webinar remain the same. The changes are: • the deadline for completing your declaration of compliance (registration) with the regulator has been extended to five calendar months • the period for completing automatic enrolment (joining window) has been extended to six weeks • a new definition of a pay reference period has been introduced which allows employers to choose to align the assessment of their workers to tax weeks or tax months • the deadline for a number of the information requirements has been extended to six weeks www.tpr.gov.uk/docs/resource-info-to-workers.pdf • the opt-out period remains as one calendar month. • For the earnings thresholds for the current tax year visit our website at: www.tpr.gov.uk/earnings-thresholds.

3. Automatic enrolmentChanges in legislation - 1 April 2014 Since the recording of this webinar there have been a number of changes in automatic enrolment legislation. The principles described remain the same. The changes are: • The deadline for completing declaration of compliance (registration) with the regulator has been extended to five calendar months. • The period for completing automatic enrolment (joining window) has been extended to 6 weeks • A new definition of a pay reference period has been introduced which allows employers to choose to align the assessment of their workers to tax weeks or tax months • The deadline for a number of the information requirements has been extended to 6 weeks www.tpr.gov.uk/docs/resource-info-to-workers.pdf • The Opt-out window remains as one calendar month. • For the earnings thresholds for the current tax year visit our website at: www.tpr.gov.uk/earnings-thresholds The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.

4. Scope of the webinar • Introduction • Your pension arrangements • Your payroll & IT systems • The questions you might need to ask to ensure these systems work together • Who will be involved and what will be their role

5. Overview of legal duties & employee safeguards Automatic Enrolmentlegislation give employersa duty to: • Automatically enrol all Eligible Jobholders • Communicate to workers providing timely and appropriate information • Allow Non Eligible Jobholders to Opt-in and Entitled Workers to Join • Facilitate Opt Outs within the opt out period and promptly refund contributions • Complete declaration of compliance (registration) with The Pensions Regulator • Keep records • Maintain contributions • Automatically re-enrol all eligible jobholders every three years The Employee Safeguardsstate that employers: • Must notinduce workers to opt out or cease membership of a scheme • Must not indicate to a potential jobholder that their decision to opt out will affect the outcome of the recruitment process

6. Staging profile (volumes of employers & workers) Employees to be assessed ('000s) ERSP Staging Profile set 19 January 2012, forecast on 1 April 2012 data Average of 10,000 medium size employers staging each month in April, May & July 2014 Number of staff employed Employers per stage Employees Number of employers 1 - Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Total employers required to complete declaration of compliance (registration)

7. Payroll & IT systems Automatic Enrolment webinar- Systems & Schemes

8. Are they an Active Member of a Qualifying Scheme? Are they excluded from Assessment† ? Yes No No No statutory duty to enrol No statutory duty to enrol Yes No No Not an eligible jobholder Not an eligible jobholder Total QE paid in PRP > earnings trigger ? Aged between 22 and SPA? STEP 1 Assessment Date 22nd Birthday in this PRP?? New Assessment Date = 1st day of next PRP Yes Yes Yes New Assessment Date = 22nd Birthday No STEP 2 Automatic Enrolment New Assessment Date = 1st day of next PRP SPA – State Pension Age QE – Qualifying Earnings PRP – Pay Reference Period • † A person would be excluded if they: • are not a UK worker; or • are under 16 or aged 75 or over; or • do not need to be assessed yet (e.g. subject to Postponement, Transitional Period or only need to be assessed on Re-enrolment dates). In Step 1, given the Assessment Date, determine if the person needs to be automatically enrolled under the legislation: If you can answer the question in any ONE of the diamond boxes to reach a yellow lozenge, then the person does not have to be automatically enrolled under the legislation (yet). Otherwise, if you have answered all possible questions, proceed to Step 2.

9. In Step 2, the employer needs tocarry out automatic enrolment. The deadline for all activities is one month from the Assessment Date, but the employee contributions need to be taken on the first payday on or after the Assessment Date. Pension scheme contributions will be calculated based on scheme rules and dated from the Assessment Date to the end of the Pay Reference Period (PRP) STEP 1 Assessment Date Issue enrolment letter to eligible jobholder STEP 2 Automatic Enrolment Employee contributions deducted from first pay Scheme administrator setsup Active Membership / sends scheme T&Cs

10. Are they an Active Member of a Qualifying Scheme? Are they excluded from Assessment† ? Yes No No No statutory duty to enrol No statutory duty to enrol Yes No No Not an eligible jobholder Not an eligible jobholder Total QE paid in PRP > earnings trigger ? Aged between 22 and SPA? STEP 1 Assessment Date 22nd Birthday in this PRP?? Yes Yes New Assessment Date = 22nd Birthday Issue enrolment letter to eligible jobholder No STEP 2 Automatic Enrolment New Assessment Date = 1st day of next PRP Employee contributions deducted from first pay Scheme administrator setsup Active Membership / sends scheme T&Cs New Assessment Date = 1st day of next PRP

11. AE process Assessment results Payroll data £ Enrolment letter to worker Payment £ Enrolment instructions to pension provider Payroll instructions £ Pension Scheme Rules £

12. AE process Assessment results Payroll data £ Enrolment letter to worker Some payroll software systemscan do the assessment and calculate contributions. Payment £ Enrolment instructions to pension provider Payroll instructions £ Pension Scheme Rules £

13. AE process Assessment results Payroll data £ Enrolment letter to worker Payment £ Alternatively, assessment and contribution calculations may be done by non-payroll software (“middleware”) Enrolment instructions to pension provider Payroll instructions £ Pension Scheme Rules £

14. AE process Assessment results Payroll data £ Middleware, in addition to doing the assessment and contribution calculations, may also handle communications with your pensions scheme(s) and issue letters to workers. Enrolment letter to worker Payment £ Some pension scheme providers may offer “middleware” assessment services. Enrolment instructions to pension provider Payroll instructions £ Pension Scheme Rules £

15. AE process Assessment results Payroll data £ Enrolment letter to worker Payment £ However, some middleware systems may do the assessment and communications, but expect the employer to calculate contributions Enrolment instructions to pension provider Payroll instructions £ Pension Scheme Rules £

16. Assessment Day Key: C – Payroll cutoff R – Payroll run P– Payday 1st 30th 1st 31st 1st 30th May June April 28th 28th 28th C R P0 C R C R P2 P1 • Scenario after Postponement • Pay Reference Period (PRP) runs from 1st to last day of each month; • Assessment date on 31st May is the last day of the Pay Reference Period and is after the May payday on 28th; • Total Qualifying Earnings will already be known. • If the worker needs to be automatically enrolled: • First deduction needs to made in the next payday - P2 on 28th June; • Opt Out window will start before first deduction taken; • Contribution based on 100% of June pensionable pay + 1/31 of May pay Opt Outwindow starts Issue letter to worker & set up Active Membership Total QE paid in PRP > earnings trigger ? No No statutory duty to enrol Yes Are they an Eligible Jobholder? No Yes Scenario Postponement to the last day of PRP Monthly Pay Reference Period (PRP) Automatic Enrolment triggered

17. Questions to consider In practice, employers will almost certainly need some software automation. Do you intend to use your payroll software to assess your workers? Can your payroll provider provide this assessment on your product & version? Or would you need to upgrade your payroll system to do this? Or, are you going to get another supplier to carry out the assessments (e.g. pension scheme provider or other non-payroll / middleware provider)? Will all of the software do what you need it to do? How will you automate staff communications (e.g. a ‘mail merge’ software tool)? Can your IT / computer systems cope, if you need to run additional software? Where is your data stored (e.g. on an integrated HR/payroll system or separately)? How accurate and up to date is your employee data (e.g. NI, address, etc)? How will these systems work together– what data standards do they support? Talk to your existing providers and any possible new suppliers about this, well in advance of your staging date.

18. Questions to ask suppliers Does the system support the following: Communications with workers (e.g. does it generate/issue letters or just produce a list of workers that need letters)? Does it calculate pension contributions and for what definitions of pensionable pay? Can the software calculate less than a whole period pension contribution (e.g. calculate a pro-rata contribution if a worker is enrolled into the scheme mid-way through the PRP – they may be turning 22 years old)? Can the software calculate more than a whole period pension contribution (e.g. can you use Postponement to the last day of the PRP)? What flexibility is there - configuring different Postponement rules for various scenarios? What data standards are supported / what pension schemes can it connect with? For middleware assessment software only: What payroll systems will it support (e.g. data formats used for input & output) ? If you have more than one AE scheme – and will use a pension provider’s middleware : Will the software assess workers who would be enrolled into another provider’s pension scheme, if they triggered automatic enrolment?

19. Planning timeline Your declaration of compliance (registration)deadline 08 01 May 2014 02 Sep 2014 www.tpr.gov.uk/employers/planning-for-automatic-enrolment.aspx

20. Who is responsible - develop a plan To ensure they can comply with their duties, employers are likely to have to consider: HR issues (e.g. employment & non-employee contracts, employee data accuracy, employee benefits policies, new joiner processes, staff communications, etc); Pensions issues (e.g. impact on existing pensions schemes & their members, whether to use an existing scheme or a new scheme for automatic enrolment, etc); Payroll issues (e.g. pay cycles, payroll cut-offs, payroll data accuracy, refunds, contribution calculations, processes which span tax years, etc); Information Technology (IT) issues: (e.g. computer systems, reliability & networking issues, data standards to allow different software/systems to work together, etc); Procurement issues: (e.g. any plans to buy new IT systems/software or pensions schemes or upgrade/change existing systems/software, etc); Financial issues: (e.g. forecasting and budgeting for any impact on costs, etc). Employers should make sure they involve the right people in their own organisation and in all their suppliers (or potential suppliers).

21. Pension Schemes Automatic Enrolment webinar- Systems & Schemes

22. Pension schemes types Pension schemes can be either: Defined Contribution (DC) – e.g. ‘money purchase’ Defined Benefit (DB) – e.g. ‘Final Salary’ or ‘Career Average’ Hybrid – a mix of DB and DC An Automatic enrolment scheme must be used for: the automatic enrolment of Eligible Jobholders; the enrolment of any Jobholders who ‘Opt In’. Qualifying schemes If an existing scheme is nota Qualifying Scheme:  Scheme members would need to be automatically enrolled into an Automatic Enrolment scheme, if they are Eligible Jobholders. Employers may want to change the contributions levels and/or scheme rules of their existing schemes to make them qualifying.

23. What pension schemes can be used? Workers already active members of a Qualifying Scheme do not need to be automatically enrolled Automatic Enrolment Scheme Must be used for automatic enrolment and ‘Opt Ins’ • Qualifying Scheme • must be tax registered; • and meet minimum criteria Employers will need to contribute to the pension scheme Employers may also use a Qualifying Scheme or an Automatic Enrolment Scheme for Entitled Workers • must be registered in the UK or EEA† • must have no barrier to automatic enrolment • must be a Qualifying Scheme • Scheme for Entitled Workers • scheme is registered Employers are notrequired to make an employer contribution †European Economic Area states

24. DC Scheme Minimum Contributions Phase 3 Phase 1 Phase 2 Min DC 8% total* Min DC 5% total* * % of Qualifying Earnings Min DC 3% employer* Minimum DC 2% total contribution* Min DC 2% employer* Minimum DC 1% employer contribution* New born Employers Large employers Medium employers Small/micro employers Feb 2018 Oct 2017 Oct 2018 Oct 2012 April2014 June2015 May2017

25. Review your pensions Employers should consider what they need to do about their pension schemes. For your existing pensions scheme (if you have one): Are there any existing active members (e.g. members currently contributing)? Could any of the existing members be (or become) Eligible Jobholders? Does the scheme satisfy the minimum criteria? See: www.tpr.gov.uk/employers/explaining-qualifying-schemes.aspx Do you want to use this scheme as an automatic enrolment scheme? ... ... your existing scheme provider may not allow it be made an automatic enrolment scheme (e.g. the scheme provider needs to issue Opt Out forms). If you need to or want to use a new scheme for automatic enrolment: How will you choose the scheme provider, scheme and default fund?See: www.tpr.gov.uk/docs/selecting-a-good-automatic-enrolment-scheme.pdf Some scheme providers may not wish to offer you a pension scheme. Providers may be at full capacity – or have long waiting times. NEST are obliged to offer you a pension scheme ... but don’t leave it too late!

26. Choosing a good quality scheme Scheme simplicity Workers should be able to understand the scheme (but if they don’t make any decisions they are still protected). Communications The scheme provider should regularly send good quality communications to members Investment options Is the default investment strategy suitable? What makes a good quality scheme? Pension Provider The skills, knowledge and processes of those running your pension scheme are vital. Managing Investments Know who is responsible for monitoring these default strategies. Value for money Are the costs and charges competitive and good value for the services provided

27. Useful Links Main steps to prepare for automatic enrolment www.tpr.gov.uk/employers/main-steps.aspx Detailed guides for Employers (and pension professionals): www.tpr.gov.uk/pensions-reform/detailed-guidance.aspx Planning for Automatic Enrolment www.tpr.gov.uk/employers/planning-for-automatic-enrolment.aspx What information do employers need to provide to their workers? www.tpr.gov.uk/docs/Pensions-reform-resource-information-to-workers.pdf Letter templates for employers: www.tpr.gov.uk/employers/letter-templates-for-employers.aspx Information about declaration of compliance (registration) and employer checklist: www.thepensionsregulator.gov.uk/employers/registration.aspx www.tpr.gov.uk/docs/automatic-enrolment-online-registration-checklist.pdf Logo for Automatic Enrolment (“3 coins”): (choose “I only require automatic enrolment assets”) https://communicationcentre.dwp.gov.uk/dwp/index.php Detailed guides for Software Developers: www.tpr.gov/employers/software-developers.aspx

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