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Automatic enrolment – Reviewing your pension arrangements Neil Esslemont Head of industry liaison June Automatic enrolment – Reviewing your pension arrangements Neil Esslemont Head of industry liaison June 2012

7 steps to preparing for workplace pensions reform 1. Know your staging date – 7 steps to preparing for workplace pensions reform 1. Know your staging date – when to act 2. Assess your workforce 3. Choose a pension scheme for automatic enrolment 4. Communicate the changes to all your eligible workers 5. Automatically enrol your eligible workers 6. Register with The Pensions Regulator 7. Contribute to your workers’ pensions DM: 2064597 v 1 A This presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way.

Session topics • Worker categories and the duties & rights for pension scheme enrolment Session topics • Worker categories and the duties & rights for pension scheme enrolment • What is meant by ‘qualifying scheme’ and the qualifying criteria • How to check if your existing scheme qualifies • What to do if you don’t have an existing scheme • What to do if you are an employer in the public sector • Your next steps DM: 2064597 v 1 A This presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way.

Workers categories¥ Age Range Earnings Under lower earnings threshold (<£ 5, 564 pa) Between Workers categories¥ Age Range Earnings Under lower earnings threshold (<£ 5, 564 pa) Between £ 5, 564 pa and £ 8, 105 pa 16 -21 22 -SPA*-74 Entitled Worker (can request to join a scheme) Non-eligible Jobholder (can “Opt In” to an automatic enrolment scheme) Eligible Jobholder Over earnings trigger for automatic enrolment (>£ 8, 105 pa) * Non-eligible Jobholder (must autoenrol into an automatic enrolment scheme) SPA = State Pension Age ¥ Who work / ordinarily work in the UK (excluding the Channel Isles and Isle of Man) DM: 2064597 v 1 A This presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way. Non-eligible Jobholder

An overview Ø Automatic enrolment scheme criteria – Only those schemes used for automatic An overview Ø Automatic enrolment scheme criteria – Only those schemes used for automatic enrolment need to meet this criteria Ø Qualifying schemes – Existing schemes with active members need to be qualifying schemes to avoid the duty to automatically enrol eligible jobholders – If the existing scheme is non-qualifying, eligible jobholders need to be enrolled into another scheme Ø Schemes for entitled workers – Scheme is registered under Chapter 2 of Part 4 of the Finance Act 2004 (and in the case of a personal pension scheme there are direct payment arrangements in relation to the worker concerned) Ø Non-UK registered schemes – Non-UK schemes may be determined as qualifying schemes – DWP Consultation on schemes administered in European Economic Area states DM 2198808 v 2 A. This presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way.

Automatic enrolment schemes Automatic enrolment schemes

The three sets of criteria to be an auto enrolment scheme • Any scheme The three sets of criteria to be an auto enrolment scheme • Any scheme into which you automatically enrol workers will need to be an automatic enrolment scheme, it must: ü be a qualifying scheme and ü it must not contain any provisions that: • prevent the employer from making the required arrangements to automatically enrol, opt in or re-enrol a jobholder; • require the jobholder to express a choice in relation to any matter, or to provide any information, in order to remain an active member of the pension scheme. • Schemes administered in a country inside the European Economic Area (EEA) may be used for automatic enrolment if they meet additional criteria. • Schemes administered in a country outside the EEA cannot be an automatic enrolment scheme.

Qualifying schemes Qualifying schemes

Are your schemes qualifying? • For a UK pension scheme to be qualifying in Are your schemes qualifying? • For a UK pension scheme to be qualifying in relation to a jobholder, it must: ü be an occupational or personal pension scheme, ü be tax registered, and ü satisfy the minimum requirements. • An automatic enrolment scheme must be qualifying scheme • If an existing scheme is a qualifying scheme, members of that scheme who would be assessed as eligible jobholders do not need to be automatically enrolled into another automatic enrolment scheme. • For a non-UK pension scheme to be qualifying in relation to a jobholder, it must meet different and additional criteria.

Qualifying schemes – minimum requirements Qualifying schemes – minimum requirements

Minimum requirements for Final Salary schemes A final salary Defined Benefits (DB) scheme would Minimum requirements for Final Salary schemes A final salary Defined Benefits (DB) scheme would meet the minimum requirements if: ü it is Contracted Out, or ü it meets the ‘Test Scheme’ standard including: • • an annual pension >= 1/120 th (or a cash sum of 16%) of average qualifying earnings in the three tax years before the end of pensionable service, multiplied by the number of years of pensionable service, up to 40 years max; • revaluation of accrued benefits by a specified method; • the annual increase in the rate of pensions in payment must be at least the increase in the consumer prices index (CPI), capped at either 5% or 2. 5% (depending on various factors); • • entitlement to a pension from age 65, gradually increasing to 68 (to reflect increases in state pension age) and continuing for life; for cash balance schemes, annual benefit accrual of at least 16% of qualifying earnings (or 8% of qualifying earnings where revaluation is at least 3. 5% per annum more than the specified method). DWP will be issuing guidance for employers and actuaries on how to certify that DB and hybrid schemes meet the test scheme standard. DM 2198808 v 2 A. This presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way.

Minimum requirements for Average Salary schemes An average salary Defined Benefits (DB) scheme would Minimum requirements for Average Salary schemes An average salary Defined Benefits (DB) scheme would meet the min requirements if: ü it is Contracted Out or meets the ‘Test Scheme’ standard and ü during a jobholder’s pensionable service, any benefits that accrue to the jobholder are revalued: • by at least the annual increase in either RPI or CPI (capped at 2. 5%), or • if there is a discretionary power to revalue at or above RPI / CPI, then: – – † the funding of the pension scheme must take into account the exercise of the discretionary power and must do so on the assumption that the minimum revaluation rate is at least the annual increase in RPI or CPI, capped at 2. 5%, and such funding must be provided for in the pension scheme’s statement of funding principles†. as required under Part 3 of the Pensions Act 2004 - or in an equivalent funding statement if the pension scheme is not subject to the Part 3 funding requirements of the Pensions Act 2004 (e. g. a non-UK pension scheme). DM 2198808 v 2 A. This presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way.

Minimum requirements for DC schemes • A Defined Contribution (DC) pension scheme would meet Minimum requirements for DC schemes • A Defined Contribution (DC) pension scheme would meet the minimum requirements if one of these conditions are met: ü Under the scheme*, however calculated, the total contribution must be at least 8%** of the jobholder’s qualifying earnings, of which the employer’s contribution must be at least 3%** of the jobholder’s qualifying earnings; or ü Where the pension scheme rules define pensionable pay other than qualifying earnings the employer may certify that one of three alternative requirements are met (Self Certification); or ü Where the pension scheme rules define pensionable pay other than qualifying earnings the employer may compare the entitlement in their scheme rules against the minimum contribution level in the first bullet. * “Under the scheme” means, in the case of DC occupational schemes, in the scheme rules or other governing documentation and, in the case of DC personal pension schemes, in the agreements between the provide and the employer/member. NB there additional minimum requirements for personal pensions eg direct payment arrangements must be in place. ** Note – contribution levels are being phased in. DM 2198808 v 2 A. This presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way.

DC Self Certification The minimum requirements can be met by DC pension schemes if, DC Self Certification The minimum requirements can be met by DC pension schemes if, under the scheme rules (or agreements, in the case of a personal pension scheme): 1. the total minimum contribution must be at least 9%* of the scheme’s definition of pensionable pay (at least 4%* of which must be the employer’s contribution) provided that pensionable pay is, or 2. the total minimum contribution must be at least 8%* of the scheme’s definition of pensionable pay (at least 3%* of which must be the employer’s contribution) provided that pensionable pay constitutes at least 85% of total pay (the ratio of pensionable pay to total pay can be calculated as an average at scheme level); or 3. the total minimum contribution must be at least 7%* of the pension scheme’s definition of pensionable pay (at least 3%* of which must be the employer’s contribution), provided that total pay is pensionable. DWP have issued guidance for employers on how to certify. * Note: – contribution levels are being phased in.

Minimum requirements for Hybrid schemes • A hybrid pension scheme is neither purely a Minimum requirements for Hybrid schemes • A hybrid pension scheme is neither purely a DB nor purely a DC, but which generally has elements of both. • Depending on the type of pension scheme, it will have to meet either: Ø the same minimum requirements as a DB pension scheme or a modified version; or Ø the same minimum requirements as a DC pension scheme or a modified version (including the option to use the self certification process); or Ø a combination of the above. • DWP will be publishing the details of the minimum requirements for hybrid pension schemes in due course. • They will also be publishing guidance to help employers determine whether their hybrid pension scheme meets the minimum requirements.

How to check if your existing DC scheme qualifies Ø DC pension schemes: – How to check if your existing DC scheme qualifies Ø DC pension schemes: – How do the scheme rules or agreements define pensionable earnings? • It requires minimum contributions based on qualifying earnings • It requires contributions based on earnings other than qualifying earnings. – What are the required contribution rates? – Do you need to use certification? Ø The regulator has published a tool to help employers check whether their existing DC scheme meets the minimum criteria for an automatic enrolment scheme as set out in legislation: www. tpr. gov. uk/employers/explaining-qualifying-schemes. aspx Ø There also flowcharts as part of the detailed guidance for employers – Occupational: www. tpr. gov. uk/docs/pensions-reform-pension-schemes-appendix-d-occupational. pdf – Personal: www. tpr. gov. uk/docs/pensions-reform-pension-schemes-appendix-d-personal. pdf

How to check if your existing DB scheme qualifies Ø DB pension schemes: – How to check if your existing DB scheme qualifies Ø DB pension schemes: – Does the employer have a contracted-out certificate? – If not, does the scheme meet the test scheme standard? Ø We have published a flow chart as part of the detailed guidance for employers: www. tpr. gov. uk/docs/pensions-reform-pension-schemes-appendix-c. pdf Ø Checking the automatic enrolment criteria (DB and DC): ü Does it allow a worker to join it without the worker’s consent? ü Does it allow a worker to join it from their first day of employment? ü Does it allow a worker to join without having to make any choices (eg about what type of fund their money is invested in) and without having to provide any information (eg filling in a form)? DM: 2064597 v 1 A This presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way.

What to do if you don’t have an existing scheme TPR has published a What to do if you don’t have an existing scheme TPR has published a leaflet ‘Selecting a good automatic enrolment scheme’. This sets out questions employers can ask when: Ø Selecting a pension product for automatic enrolment, or Ø Reviewing the suitability of their existing scheme. The six principles for good DC schemes: ü Principle 1 - Schemes designed to be durable, fair and deliver good outcomes for members. ü Principle 2 - A comprehensive scheme governance framework is established at set-up, with clear accountabilities and responsibilities agreed and made transparent. ü Principle 3 – Those who are accountable for scheme decisions and activity understand their duties and are fit and proper to carry them out. ü Principle 4 - Schemes benefit from effective governance and monitoring through their full lifecycle. ü Principle 5 - Schemes are well-administered with timely, accurate and comprehensive processes and records. ü Principle 6 - Communication to members is designed and delivered to ensure members are able to make informed decisions about their retirement savings.

What to do if you are an employer in the public sector Reviewing your What to do if you are an employer in the public sector Reviewing your pension arrangements: • Understand what public sector policies affect your duties • Contact the responsible department to check how each scheme will qualify • Find out what changes to the scheme rules will be made and when DM: 2064597 v 1 A This presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way.

Next Steps • For more details on pension schemes, refer to Detailed guidance no. Next Steps • For more details on pension schemes, refer to Detailed guidance no. 4 – Pension schemes. • For help on checking whether an existing DC scheme meets the minimum criteria for an automatic enrolment scheme use our new tool. http: //www. tpr. gov. uk/employers/explaining-qualifying-schemes. aspx • Employers with automatic enrolment duties, the next step should be to read Detailed guidance no. 5 – Automatic enrolment identifying who, when and how to automatically enrol - and employers’ ongoing responsibilities. DM: 2064597 v 1 A This presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way.

Useful links • ‘ 7 steps to prepare for automatic enrolment’ The main steps Useful links • ‘ 7 steps to prepare for automatic enrolment’ The main steps an employer needs to take to fulfil the employer duties www. tpr. gov. uk/employers/7 -steps. aspx • Detailed guides for employers (and pension professionals) by volume www. tpr. gov. uk/employers/detailed-guidance. aspx • What information do employers need to provide to their workers? www. thepensionsregulator. gov. uk/docs/pensions-reform-resourceinformation-to-workers-v 2. pdf • Detailed guide for software developers www. tpr. gov. uk/professionals/software-developers. aspx DM 2198808 v 2 A. This presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way.

www. tpr. gov. uk www. tpr. gov. uk