Automatic enrolment ACIE Annual Conference England and Wales

1. Stephen RowntreeIndustry liaison manager 22 June 2016 Automatic enrolmentACIE Annual Conference England and Wales The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.

2. Topics Why is automatic enrolment being introduced? What employers need to do Staging dates and overall timetable Who is subject to the automatic enrolment duties? Worker categories and the duties and rights for pension scheme enrolment Qualifying earnings and the automatic enrolment processes Postponement Monitoring worker status and re-enrolment Pension schemes and pensionable earnings Opt ins and opt outs Communicating with workers Keeping records Re-enrolment Declaration of compliance

3. Why is automatic enrolment being introduced? 7 million people are under-saving There are currently four people of working age for every pensioner  by 2050 there will be just two. Past and predicted trends in the life expectancy period of 65 year old men and women in the UK as of 2004 and 2010

4. Overview of legal duties and safeguards Automatic enrolment legislation gives employersa duty to: • automatically enrol all staff who are eligible (‘eligible jobholders’) • other staff who have the right to ask to opt inor join a pension • communicate to their staff • manage opt outs and promptlyrefundcontributions • every three years, automatically re-enrolstaff who are eligible • complete a declaration of compliance with the regulator • keep records • maintain payments of pension contributions The employee safeguards mean that employers: • must not induce staff to opt out or cease membership of a pension, and • must not indicate, when recruiting new staff, that the decision to employ them will be influenced by whether or not they intend to opt out.

5. Customising the steps for different employers

6. Staging • The employer duties apply to each employer fromtheir staging date: • the duties apply to all of the employer’s workers from that date. • An employer’s staging date will be based on the PAYE scheme or schemes that were being used on 1 April 2012. • After 1 April 2012, any change to the PAYE schemes being used will have no effect on the staging date. • However, new employers* will go last, from May 2017. Do not assume your clients know their staging date- check this on our website *Employers that did not exist (or werenot using a PAYE) as at 1 April 2012. Large employers Medium employers Small/micro employers New*employers Oct 2012 May 2017 June 2015 Feb 2018 April 2014

7. Staging dates for new employers (post 1 April 2012)

8. Staging profile (excludes those without eligible jobholders and employers with no workers) Very large volumes staging from January 2016 We estimate* that up to a million employers yet to stage will have full automatic enrolment duties * Based on age and earnings data from HMRC

9. Who is included in the automatic enrolment duty? A person may be subject to the automatic enrolment legislation if they are: aged 16 to 74 (inclusive), and work in the UK*... ... whether or not they are full time or part time, permanent or temporary. There may also be other people who areincluded: overseas workers, who are considered ordinarily working in the UK*. However, the truly self employed are not subject to automatic enrolment. * the Channel Isles and the Isle of Man are outside the UK

10.  Who is excluded? • Exclusions from automatic enrolment duties include: • directorsnotworking under an employment contract; • office-holderswhoare not considered workers (eg non-executive directors, trustees, elected members) - but they are only excluded for the activities they carry out as an office holder; • the (truly) self-employed; • a company with only one employee, if that employee is also a director of that company (but only for the work they carry out for that company). • However, employers may choose whether or not to automatically enrol certain people who trigger automatic enrolment, including individuals* who: • are directors working under an employment contract (from 6 April 2016); • are LLP partners,but are not ‘salaried members’ under HMRC tax rules (duties continue to apply in full to ‘salaried members’); • are in their notice period; • have previously ceased active membership of a qualifying pension; • have HMRC tax protected status for their pension savings; • have received a pension winding-up lump sum payment. * See additional slides on “Exceptions” for more details

11. Is your client considered the ‘employer’? • Where someone: • is employed by your client (ie they have a contract of employment with your client), or • is directly contracted to perform work for your client and your client pays the individual: •  then your clientis considered to be the ‘employer’(ie the ‘employer’ is the legal entity named in the contract). • Otherwise: • if someone working for your client is employed by another company (perhaps because they work for an agency or their own limited company), your client will not be considered the employer and so will have no AE duties for them. • if someone working for your client is paid for this work by another company or agency, that company will have the responsibility for any automatic enrolment duties, not your client.

12. What if someone says they are self-employed? • If someone working for your client says they are self-employed, your client should not assume that this person is exempt from automatic enrolment … • unless they are a director of your client’s company, as a director who is not working under an employment contract is exempt. • Otherwise, your client should consider if the contract allows the individual to subcontract the work or freely substitute somebody else to do it … • if so, then your client will not have any automatic enrolment duties for the individual. • However, if the individual (who is not director of that company) is normally expected to do the work themselves (unless they are unable to do it themselves, eg they are on holiday or sick) … • then they are considered to have a ‘personal contract’ to perform work or services and the employer will need to judge whether or not the individual is doing the work as part of their own business.

13. Is someone working as part of their own business? • If someone (who is not a director) considers themselves self-employed and has a ‘personal contract’: • The employer will need to consider whether the individual is working as part of their own business or not. • There are a number of factors that will help decide this. Does the employer: • have control of the hours they work? • provide any employee benefits? • bear all the significant financial risks in carrying out the work (eg the worker is not financially responsible for their faulty work)? • consider the individual to be part of their own organisation? • provide what is required for the individual to carry out the work (eg tools)? • If most or all of the above are true, it would be reasonable to considerthat the individual is not undertaking the work as part of their own businessand so are subject to automatic enrolment. • Otherwise, they are truly self-employed and are exempt.

14. To tell us you are not an employer • If an employer does not believe they are an employer because: • it is a sole director company, with no other staff • it is a company with more than one director, where no more than one director has an employment contract • the company has ceased trading • the company has gone into liquidation or has been dissolved • Tell us at • https://automation.thepensionsregulator.gov.uk/notanemployer • The tool is notfor employers who: • have no staff to enrol on their staging date, or • for companies in administration or in non-terminal insolvency

15. Worker categories Non-eligible jobholders can opt in to an automatic enrolment pension scheme Entitled worker Can request to joina pension scheme Up to £5,824**pa Over £5,824 pa and up to £10,000**pa Non-eligible jobholder -Eligible Jobholder Eligible jobholder Non-eligible jobholder Non-eligible jobholder More than £10,000**pa Employer must automatically enroleligible jobholders into an automatic enrolment pension scheme * SPA = State Pension Age ** Figures for 2016/17

16. AE earnings trigger v Pay Reference Periods 2016-17† †For other Pay Reference Period (PRP) durations, multiply the number of weeks in the PRP by the weekly amount (eg £192.00) or number of months by the monthly amount (eg £833.00) etc - or pro-rata if not an exact multiple of any of the above. The Secretary of State will review these figures each tax year.

17. Are joiners entitled to an employer contribution? 2016-17 N.B. The Secretary of State will review these figures each tax year.

18. Assessing your staff Employers will need to assess all their staff on their staging date unless they choose to use ‘postponement’ (described in later slides). Their qualifying earnings mustbe used to assess their category (ie eligible jobholder, non-eligible jobholder or entitled worker). Qualifying earnings is any component of pay that could be considered one of these pay elements (an employer should use their reasonable judgement): salary/wages, commission, bonuses, overtime and some statutory payments (excluding expenses and dividends). Eligible jobholders must be automatically enrolled into a suitable scheme but any active member of a ‘qualifying’ pension scheme with that employer will not need to be automatically enrolled. After the staging date, employers will have to: assess all new staff who join them assess some staff every pay period (see slide on ‘Monitoring eligibility’) assess somestaff again every three years (see slide on ‘Re-enrolment’).

19. Postponement Postponement suspends the duty of automatic enrolment and the need to assess and can be used: at the employer’s staging date for any or all existing staff on the first day of employment for any new joiner after the staging date, and on the date a member of staff meets the criteria to be an eligible jobholder. Only one postponement per member of staff can be made at a given time. Each worker can be postponed from one day up to maximum of three months. The employer must notify any postponed member of staff within six weeks and a day of the start of postponement. The member of staff has the right to opt in or join during postponement. Employer must assess on the last day of postponement and: automatically enrol eligible jobholders, and for those staff not eligible, monitor them each future pay period. Postponement does not change or delay the staging date

20. Monitoring eligibility for automatic enrolment After the staging date, employers will have to assess, every pay period, any worker who: is not an active member of a qualifying pension scheme, and is not under postponement or the transitional period, and has not previously been automatically enrolled (or assessed as an eligible jobholder whilst an active member of a qualifying schemeϮ). Workers assessed as an eligible jobholder would then need to be automatically enrolled (or postponed). Those workers that do not fall into the above category should be left until the next cyclical re-enrolment date(see slide on cyclical re-enrolment). ϮA worker who has simultaneously been an eligible jobholder and an active member of a qualifying scheme since the later of: the employer’s staging date; or the date they started work for the employer; or the last day of postponement.

21. Check suitability of payroll and IT systems Payroll software can help a client carry out: the assessment enrolment communications, and calculation of pension contributions If their payroll software does not do all of the above, non-payroll software or services could be used. Some pension scheme providers offer some or all of these services. Clients should plan to test these systems before they go live. Employers have often found many errors in their staff records - so these should be checked for accuracy before staging.

22. Choosing a pension The employer must have an automatic enrolment pension scheme in place by their staging date ifthey have someone to automatically enrol on this date. If there is no one who needs to be automatically enrolled then a pension scheme does not need to be set up ... but it may be useful to decide which pension would be used if someone asks to join or meets the criteria to be automatically enrolled. The employer has the right to select the pension and can choose to decline any request to contribute to other schemes. If the employer does use a scheme requested by a member of staff they need to check that it can be used and is qualifying. For more information go to www.tpr.gov.uk/what-to-consider-when-choosing-a-scheme.aspx

23. Steps for those who have to provide a pension

24. Pensionable earnings Pensionable earnings can be based on qualifying earnings OR another definition (eg basic pay). When qualifying earnings are used to determine pensionable pay: pension contributions are determined by the rules of the scheme, and will be based on banded earnings between the lower earnings threshold and upper earnings limit (currently £5,824*pa and £43,000*pa). If pensionable earnings are not based on qualifying earnings, the employer can self certify ifthe scheme meets certain minimum criteria: ‘Set 1’ - if basic pay from £1 is pensionable, or ‘Set 2’ - if at least 85% of total pay (scheme average) is pensionable, or ‘Set 3’ - if 100% of total pay is pensionable. • * Pro-rata of annual amount used in each Pay Reference Period. These figures are for 2016-17. The Secretary of State will review this amount each tax year.

25. Thresholds v Pay Reference Periods (PRP) 2016-17† †For other Pay Reference Period (PRP) durations, multiply the number of weeks in the PRP by the weekly amount (eg £192.00) or number of months by the monthly amount (eg £833.00) etc - or pro-rata if not an exact multiple of any of the above. N.B. The Secretary of State will review these figures each tax year.

26. 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* Newemployers Large employers Medium employers Small/micro employers Minimum DC 1% employer contribution* Feb 2018 April 6th 2018 † May 2017 June 2015 April 2014 Oct 2012 April 6th 2019 † † Subject to parliamentary approval

27. What pension schemes can be used? Must be used for automatic enrolment and ‘opt ins’ Workers already active members of a qualifying scheme do not need to be automatically enrolled Automatic enrolment scheme Employers will need to contribute to the pension scheme • Qualifying scheme • must be tax registered: • and meet minimum criteria Employers may also use a qualifying scheme or an automatic enrolment scheme for entitled workers • Scheme forentitled workers • scheme is registered • must be registered in the UK or EEA* • must have no barrier to automatic enrolment • must be a qualifying scheme Employers are notrequired to make an employer contribution *European Economic Area states

28. Can clients use an existing pension scheme? If clients have an existing scheme, it may not be suitable for automatic enrolment. To be a qualifying scheme: the contributions due must be at or above the minimum criteria if it is a personal or GPP contract-based scheme, it is likely to need a jobholder agreement for each active member. If it is not a qualifying scheme, it may be possible to change the scheme rules to make it qualifying. Active members of a pension which is not qualifying would need to be assessed and, if eligible, automatically enrolled into another pension. If they want to use a qualifying scheme to automatically enrol their workers: the pension must have no barrier to automatic enrolment (eg default fund). The existing pension provider may not allow it to be made a qualifying scheme or an automatic enrolment scheme - check with the pension provider.

29. Choosing a new pension - how to find one • The government scheme • National Employment Savings Trust (NEST) is a pension scheme that all employers can use to meet their duties. • Schemes with master trust assurance • the master trust assurance framework provides an independent review against an industry-wide benchmark of quality • these features in our DC code represent the standards of governance and administration that we expect trustees to attain • we list those schemes that have said they’re open to all small employers looking for a scheme provider for automatic enrolment • Schemes listed by other industry bodies • Pensions and Lifetime Savings Association (PLSA) Pension Quality Mark • The Association of British Insurers (ABI) list of GPP providers

30. Choosing a new pension - factors to consider • It is the employer’s responsibility to choose a pension scheme for their workers. • Employers should consider what features are important for their workers, for example: • charges (there is an annual 0.75% charge cap on the default fund) • choice of funds other than the default strategy (eg Sharia,ethical) • options at retirement and/or from age 55 (eg drawdown options) • whether they provide ‘one pot per member’ and rules on transfers • how tax relief is applied (eg through payroll or by the pension provider) • online member services • member communications (may be available in multiple languages) • For help on how to select a good qualifying pension, please see: • www.tpr.gov.uk/choosing-a-pension-scheme.aspx

31. Tax relief: two mechanisms • Many small employers and their advisers may not realise that there are two ways that the tax relief on staff members’ pension contribution can be applied: • Net Pay Arrangement • Relief at Source (‘not Net Pay Arrangement’) • Many pension schemes only support one tax relief method, although some pension providers allow the employer to choose either method. • It is vital to understand which system your clients are going to use, to avoid miscalculating the contributions and tax due. • For more information look at the ‘tax relief’ section at:www.tpr.gov.uk/what-to-consider-when-choosing-a-scheme.aspx

32. Opting in and joining Entitled workers can request to join a scheme at any time, including during postponement. Jobholders can opt in at any time, including during postponement. However, workers will not necessarily know whether they are jobholders or entitled workers and this could vary over time. All requests (whether an opt in or join request) are treated the same way. On receipt of any request to opt in or join a pension from a worker, employers need to: assess the worker, to see if they are a jobholder or entitled worker, then enrol jobholders into an automatic enrolment scheme, and enrol entitled workers into a scheme of the employer’s choice. A jobholder must not be required to carry out any further action to achieve active membership (eg the pension scheme should have a default fund).

33. Opting out Workers automatically enrolled (or who have opted in) may opt out. Employer must inform staff of their right to opt out and how to opt out. The employer must notgive out or send out opt out forms: requests to opt out must be handled by the scheme provider, and completed forms would normally be sent to the employer. A one calendar month opt out window starts on the later of two dates: once the worker is an active member of the pension scheme, or when the employer gives a notice of enrolment letter/email to the worker. The worker will get a full refund of all contributions. Early opt outs (before the opt out window starts) - are not allowed. After the opt out window has closed, the worker may still request to cease membership of the pension scheme (under the scheme rules). A worker who has opted out does not need to be assessed again until the employer’s next re-enrolment date (occurs approx every 3 years).

34. Communicating to staff • Employers will need to communicate totheir staff informing them of their rights: • enrolment • when using postponement • and to explain a worker’s right to opt in or join a scheme. • The deadline for most communications is within 6 weeks*. • Communications must be sent directly to the individual (eg by letter, email, HR web portal). • We have provided example ‘template’ letters, which may be customised. • www.tpr.gov.uk/writing-to-your-clients-staff.aspx • * Postponement 6 weeks from the day after the assessment date

35. Record-keeping Employers must keep records about their workers and the pension scheme used to comply with the employer duties (pension providers and trustees will also have duties to keep records). An employer can use electronic or paper filing systems to keep or store any records, as long as these records can be produced in a legible way. Most records must be kept for six years. Those that relate to opting out must be kept for four years. The records must be provided to The Pensions Regulator, on request. We can conduct an inspection, if we have reasonable grounds to do so (for example, this may be as a result of a whistle-blower alert).

36. Cyclical re-enrolment Cyclical re-enrolment occurs around every 3 years. Employer should choose a re-enrolment date which can be any day, up to 3 months before or after the third anniversary of their staging date, or previous re-enrolment date(eg an employer who staged on 1 Oct 2013 may choose any day between 1 July and 31 Dec 2016). On the re-enrolment date, workers will need to be assessed and (if an eligible jobholder)automatically re-enrolled† if these conditions apply: they are not already an active member of a qualifying scheme; and they are not being monitored every pay period (ie they have previously been automatically enrolled or assessed as an eligible jobholder whilst an active member of a qualifying scheme); and they opted-out or ceased membership of a qualifying scheme more than 12 monthsago - or if they opted-out or ceased membership of a qualifying scheme within the previous 12 months - and the employer wishes to automatically re-enrol them (ie the employer can choose whether to do this or not). Postponement cannot be usedat re-enrolment. †Exceptions may be applicable (eg if in notice period or have tax protection)

37. Declaration of compliance After staging, employers must complete a declaration of compliance and it must be completed within five months of the staging date and within five months of the 3rd anniversary of the staging date (or previous automatic re-enrolment date) - this change was effective 6 April 2016* Employers may receive a penalty fine if they do not complete their declaration on time. Employers will need to provide certain details, for example: which pension schemes were used to comply with the duties, (after cyclical re-enrolment only) their chosen automatic re-enrolment date, the number of eligible jobholders automatically enrolled into each scheme. All postponements applied at the staging date must have come to an end before the declaration can be completed. You can start the online process early and partially complete your declaration. * Previously the deadline for re-declaration was two months after the chosen re-enrolment date.

38. Support for business advisers on our website

39. Any questions?

40. Useful tools Planning:www.tpr.gov.uk/what-you-need-to-do-and-by-when.aspx Nominate a point of contact:https://automation.thepensionsregulator.gov.uk/Nomination Find a letter code online:https://automation.thepensionsregulator.gov.uk/LetterCode Tell us you are ‘not an employer’:https://automation.thepensionsregulator.gov.uk/notanemployer Bulk declaration of compliance (file upload):https://www.autoenrol.tpr.gov.uk/ Work out pension contributions:www.tpr.gov.uk/employers/employer-contributions.aspx Find an employer’s staging date: www.tpr.gov.uk/employers/tools/staging-date.aspx Bring a staging date forward: www.autoenrol.tpr.gov.uk

41. Useful links Frequently asked automatic enrolment questions:www.tpr.gov.uk/automatic-enrolment-enquiries.aspx The essential guide to automatic enrolment:www.tpr.gov.uk/docs/the-essential-guide-for-automatic-enrolment.pdf Ourdetailed guides for employers and pension professionals:www.tpr.gov.uk/pensions-reform/detailed-guidance.aspx Information about declaration of compliance:www.tpr.gov.uk/completing-the-declaration-of-compliance.aspx Lettertemplates for employers:www.tpr.gov.uk/writing-to-your-clients-staff.aspx To register for the automatic enrolment (‘3 coins’) logo - under registration, choose “I require pension automatic enrolment files”https://communicationcentre.dwp.gov.uk/dwp/index.php Event presentations:www.tpr.gov.uk/doc-library/ae-presentations.aspx

42. We are here to help! Request a guest speaker:https://secure.thepensionsregulator.gov.uk/speaker-request.aspx Contact us at:www.tpr.gov.uk/contact-us.aspx Subscribe to our news by email:https://forms.thepensionsregulator.gov.uk/subscribe.aspx Thank you The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.

43. Additional slides

44. Useful links More information about pensions: Choose a pension scheme (or check your existing one):www.tpr.gov.uk/employers/finding-a-provider.aspx The Association of British Insurers (ABI) list of GPP providers:www.abi.org.uk/Insurance-and-savings/Products/Pensions/Saving-into-a-pension/Automatic-enrolment/Providers Pensions and Lifetime Savings Association (PLSA) Pension Quality Mark:www.pensionqualitymark.org.uk/pqmreadyschemes.php National Employment Savings Trust:www.nestpensions.org.uk A guide to selecting a pension scheme:www.tpr.gov.uk/find-a-new-pension-scheme-for-clients.aspx * the voluntary master trust assurance framework was developed by the Institute of Chartered Accountants of England and Wales (ICAEW) in association with TPR to enable master trusts to obtain independent assurance that their scheme governance and administration meet an industry-wide benchmark of quality.

45. Useful links More information about pensions and automatic enrolment: Financial Advisers:www.moneyadviceservice.org.uk/en/articles/choosing-a-financial-adviserwww.financialplanning.org.uk/wayfinder Friends of Automatic Enrolment:www.cipp.org.uk/en/Pensions/friends-of-automatic-enrolment/ The Pensions Regulator: www.tpr.gov.uk/docs/selecting-a-good-automatic-enrolment-scheme.pdfwww.tpr.gov.uk/docs/introduction-code-13.pdf

46. Useful links - webinars and videos Automatic enrolment - your questions answered by our expertswww.tpr.gov.uk/press/webinar-your-automatic-enrolment-questions-answered-by-our-experts.aspx Automatic enrolment - common challengeswww.tpr.gov.uk/press/webinar-common-automatic-enrolment-challenges-november-2015.aspx Automatic enrolment - what’s my role as a business adviser?www.tpr.gov.uk/press/automatic-enrolment-webinar-whats-my-role-business-adviser.aspx Automatic enrolment - for business advisers.www.tpr.gov.uk/press/webinar-automatic-enrolment-for-business-advisers.aspx Automatic enrolment - declaration of compliance.www.tpr.gov.uk/press/webinar-automatic-enrolment-declaration-of-compliance.aspx

47. What services will you offer your clients? Decide what services you will offer and what services you will not offer- and inform your clients. • Checking your clients’ start (staging) date • Being a point of contact • Checking who to put into a pension scheme • Creating your clients’ action plan and working out your clients’ costs • Checking records and payroll processes • Choosing a pension • Assessing and enrolling staff • Writing to your clients’ staff • Completing the declaration of compliance • Explaining your clients’ ongoing duties

48. The FCA regulations and choosing a pension • Employers have the responsibility to choose a pension (or pensions) for automatic enrolment. • Investment advice to an employer (in their capacity as an employer) is not a regulated activity. • Investment advice to an individual is regulated and should only be provided if an adviser has the appropriate Financial Conduct Authority authorisation. • It may not always be easy to tell whether an employer is seeking advice as an employer or as an individual (eg where the client might join the pension themselves). • Consider the ethical standards set by your professional body and the scope of your professional indemnity insurance. • You may like to specify in the letter of engagement that any advice to an employer is provided to them in their capacity as an employer and not as an individual.

49. Relief at Source (‘not Net Pay Arrangement’) For this tax relief mechanism: • only 80% of the calculated contribution is deducted because ... • ... the member’s pension contribution will be taken after tax has been deducted, and • the pension provider claims 20% tax back from HM Revenue & Customs (HMRC) and adds it to their pension pot. • Higher rate taxpayers will have to complete an HMRC Self Assessment tax return in order to reclaim the rest of the tax paid on their contributions. • Staff who earn no more than their income tax personal allowance (£11,000 a year in 2016/17) do not pay tax, but they would still get the 20% tax relief (even though they haven’t paid any income tax on their contributions). • We suggest that employers with staff who do not pay income tax, choose a pension which operates Relief at source. • Group Personal Pensions, the government scheme (NEST) and some master trust pensions usually calculate tax relief this way.

50. Net Pay Arrangement For this tax relief mechanism: • no tax is payable on the member of staff’s pension contributions, so the employer deducts 100% of the contributions due, and • pays them to the pension provider (ie gross of tax). • If the member earns below their income tax allowance (personal allowance is £11,000 in 2016/17), the member will not get any tax relief benefit. • Higher rate taxpayers may prefer this method, as they would immediately get full tax relief through payroll without having to complete an HMRC Self Assessment tax return. • Contract based pensions, such as Group Personal Pensions (GPPs) may not use this mechanism. • Some, but not all, master trust pensions calculate tax relief this way.