PENSIONS REFORM
YOUR STEP BY STEP GUIDE
This information is for UK Financial Adviser use only and should not be distributed to or relied upon by any other person.
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FAMILIARISE YOURSELF WITH THE REQUIREMENTS OF THE LEGISLATION
PAGE 4
STEP 2
PRIORITISE YOUR CLIENT BASE
PAGE 6
STEP 3
ASSESS THE FINANCIAL IMPACT OF THE LEGISLATION ON YOUR CLIENTS
PAGE 7
STEP 4
HELP YOUR CLIENTS PREPARE FOR THE LEGISLATION
PAGE 8
HOW WE CAN HELP
PAGE 12
APPENDIX I
EMPLOYER RESPONSIBILITIES
PAGE 14
APPENDIX II
FREQUENTLY ASKED QUESTIONS
PAGE 2
INTRODUCTION
PAGE 3
STEP 1
FAMILIARISE YOURSELF WITH THE REQUIREMENTS OF THE LEGISLATION
PAGE 4
STEP 2
PRIORITISE YOUR CLIENT BASE
PAGE 6
STEP 3
ASSESS THE FINANCIAL IMPACT OF THE LEGISLATION ON YOUR CLIENTS
PAGE 7
STEP 4
HELP YOUR CLIENTS PREPARE FOR THE LEGISLATION
PAGE 8
HOW WE CAN HELP
PAGE 12
APPENDIX I
EMPLOYER RESPONSIBILITIES
PAGE 14
APPENDIX II
FREQUENTLY ASKED QUESTIONS
STEP 1: FAMILIARISE YOURSELF WITH THE REQUIREMENTS OF THE LEGISLATION
While the full proposals include reforming the State Pension to make it simpler and more generous, but potentially extending people’s working lives, the key reforms affecting employers relate to the Government’s ideas for making it easier for more people to save for retirement. The Government estimates that an estimated 11 million people are currently not saving enough for their retirement. As a result, it is putting the onus on employers to help encourage more people to save:
Between now and 2018 (dependent on the number of people in their largest PAYE scheme, from largest to smallest), employers will have to automatically enrol all eligible employees into an Automatic Enrolment pension scheme and make contributions to their plan. The largest employers have already begun Automatic Enrolment.
A staged process is being used to bring employers into the new regime over a six year period, which started in October 2012. Larger employers are being automatically enrolled first and most smaller employers will gradually be required to comply from 2014 through
Transitional period Minimum
employer
Minimum
employee* Tax relief* Minimum
total
1 October 2012 – 30 September 2017 1% 0.8% 0.2% 2%
1 October 2017 – 30 September 2018 2% 2.4% 0.6% 5%
October 2018 onwards 3% 4% 1% 8%
Contributions are as a percentage of ‘qualifying earnings’.
*Assuming the employer pays the minimum contribution.
More information about the legislation can be found in the appendices.
INTRODUCTION
THE PENSIONS REFORM LEGISLATION WILL HAVE WIDE-RANGING EFFECTS ACROSS COMPANY PENSION SCHEMES. THIS GUIDE SUMMARISES THE MAIN CHANGES, WHAT THEY MEAN FOR EMPLOYERS AND A
STEP BY STEP GUIDE ON HOW YOU CAN HELP YOUR CLIENTS.
THERE IS A LOT TO BE GAINED BY STARTING TO PREPARE NOW: YOU’LL HAVE TIME TO ANALYSE YOUR
CLIENT BANK AND ENSURE YOU CAN HELP YOUR CLIENTS THROUGH THE PROCESS. YOUR CLIENTS WILL
ALSO HAVE TIME TO CONSIDER THEIR PLANS AND SPREAD ANY FINANCIAL IMPACT OVER A LONGER PERIOD.
STEP 1: FAMILIARISE YOURSELF WITH THE REQUIREMENTS OF THE LEGISLATION
While the full proposals include reforming the State Pension to make it simpler and more generous, but potentially extending people’s working lives, the key reforms affecting employers relate to the Government’s ideas for making it easier for more people to save for retirement. The Government estimates that an estimated 11 million people are currently not saving enough for their retirement. As a result, it is putting the onus on employers to help encourage more people to save:
Between now and 2018 (dependent on the number of people in their largest PAYE scheme, from largest to smallest), employers will have to automatically enrol all eligible employees into an Automatic Enrolment pension scheme and make contributions to their plan. The largest employers have already begun Automatic Enrolment.
A staged process is being used to bring employers into the new regime over a six year period, which started in October 2012. Larger employers are being automatically enrolled first and most smaller employers will gradually be required to comply from 2014 through
to 2018 according to the number of people (including pensioners) in their largest PAYE scheme. The number is based on the information held by the Pensions Regulator from HMRC at 01 April 2012. The Pensions Regulator will write to each employer 12 months and 3 months ahead of their staging date.
There is also flexibility for some employers to bring forward this Automatic Enrolment date, subject to notifying the Pensions Regulator and the agreement of the scheme provider/trustees.
New businesses that are set up between April 2012 and September 2017 will have staging dates between May 2017 and February 2018 to allow them time to establish themselves. For more information please visit www.thepensionsregulator.gov.uk.employers/tool/
staging-date
The contribution rate for money purchase schemes will be phased in, increasing to the ultimate level of 8% of qualifying earnings. Please see page 6 for more information on qualifying earnings.
Transitional period Minimum
employer
Minimum
employee* Tax relief* Minimum
total
1 October 2012 – 30 September 2017 1% 0.8% 0.2% 2%
1 October 2017 – 30 September 2018 2% 2.4% 0.6% 5%
October 2018 onwards 3% 4% 1% 8%
Contributions are as a percentage of ‘qualifying earnings’.
*Assuming the employer pays the minimum contribution.
More information about the legislation can be found in the appendices.
INTRODUCTION
THE PENSIONS REFORM LEGISLATION WILL HAVE WIDE-RANGING EFFECTS ACROSS COMPANY PENSION SCHEMES. THIS GUIDE SUMMARISES THE MAIN CHANGES, WHAT THEY MEAN FOR EMPLOYERS AND A
STEP BY STEP GUIDE ON HOW YOU CAN HELP YOUR CLIENTS.
THERE IS A LOT TO BE GAINED BY STARTING TO PREPARE NOW: YOU’LL HAVE TIME TO ANALYSE YOUR
CLIENT BANK AND ENSURE YOU CAN HELP YOUR CLIENTS THROUGH THE PROCESS. YOUR CLIENTS WILL
ALSO HAVE TIME TO CONSIDER THEIR PLANS AND SPREAD ANY FINANCIAL IMPACT OVER A LONGER PERIOD.
2. HOW CLOSE THE BUSINESS IS TO MEETING THE REQUIREMENTS
It is likely that you will need to segment each of these categories further, particularly if you have a large number of clients.
It is worth looking at how close they are to meeting the criteria, as this will indicate how much impact the legislation will have on them, and how much advice and support they will need.
• Does the company have an existing pension scheme?
Criteria Priority
No
High
The company will need to set up an Automatic Enrolment scheme in time for their implementation date.
Yes
Medium – Low
The priority level will depend on how close the existing scheme is to being an Automatic Enrolment scheme.
• Does the scheme offer Automatic Enrolment and/or is take up rate high?
Criteria Priority
< 50% take up
High
It is likely that Automatic Enrolment will result in a higher take up rate, which will result in a financial impact on the business.
> 50% < 80% take up and no auto enrolment
Medium
It is likely that Automatic Enrolment will result in a higher take up rate, which will result in a financial impact on the business, but the impact will be less than the previous category.
> 80% and/or auto enrolment offered Low
These companies shouldn’t see a dramatic increase in take up.
• What are the current contribution levels?
Criteria Priority
<2% total contributions and/or no employer contributions
High
These companies will not meet the minimum contribution criteria for phase one. This can be checked using our Automatic Enrolment Planner.
>2% < 8% total contribution
Medium
These companies will not meet the minimum contribution criteria at the end of the phasing period, however may be ok for the early phases.
8% total contribution (including at least 3%
employer contribution)
Low
It is likely that these schemes will meet, or be close to meeting the minimum contribution criteria. This can be checked using our Automatic Enrolment Planner.
You can access the Automatic Enrolment Planner at:
http://www.scottishwidows.co.uk/extranet/financial-planning/pension-planning/ae-planner
STEP 2: PRIORITISE YOUR CLIENT BASE
It is likely that you have a large number of clients who will be affected by the legislation changes, and you will therefore need to find some way of prioritising the order in which you can help them.
The size of company is important as this will indicate whether they are likely to be affected by the legislation now or closer to 2018, and it would seem sensible to prioritise your clients in the same order.
There are two factors to consider when prioritising your client base:
1. SIZE OF COMPANY
The size of your clients company is the first factor you need to take into consideration as the larger the company the earlier their staging date.
2. HOW CLOSE THE BUSINESS IS TO MEETING THE REQUIREMENTS
It is likely that you will need to segment each of these categories further, particularly if you have a large number of clients.
It is worth looking at how close they are to meeting the criteria, as this will indicate how much impact the legislation will have on them, and how much advice and support they will need.
• Does the company have an existing pension scheme?
Criteria Priority
No
High
The company will need to set up an Automatic Enrolment scheme in time for their implementation date.
Yes
Medium – Low
The priority level will depend on how close the existing scheme is to being an Automatic Enrolment scheme.
• Does the scheme offer Automatic Enrolment and/or is take up rate high?
Criteria Priority
< 50% take up
High
It is likely that Automatic Enrolment will result in a higher take up rate, which will result in a financial impact on the business.
> 50% < 80% take up and no auto enrolment
Medium
It is likely that Automatic Enrolment will result in a higher take up rate, which will result in a financial impact on the business, but the impact will be less than the previous category.
> 80% and/or auto enrolment offered Low
These companies shouldn’t see a dramatic increase in take up.
• What are the current contribution levels?
Criteria Priority
<2% total contributions and/or no employer contributions
High
These companies will not meet the minimum contribution criteria for phase one. This can be checked using our Automatic Enrolment Planner.
>2% < 8% total contribution
Medium
These companies will not meet the minimum contribution criteria at the end of the phasing period, however may be ok for the early phases.
8% total contribution (including at least 3%
employer contribution)
Low
It is likely that these schemes will meet, or be close to meeting the minimum contribution criteria. This can be checked using our Automatic Enrolment Planner.
You can access the Automatic Enrolment Planner at:
http://www.scottishwidows.co.uk/extranet/financial-planning/pension-planning/ae-planner
STEP 2: PRIORITISE YOUR CLIENT BASE
1. SIZE OF COMPANY
The size of your clients company is the first factor you need to take into consideration as the larger the company the earlier their staging date.
STEP 4: HELP YOUR CLIENTS PREPARE FOR THE LEGISLATION
Once you have prioritised your clients and identified the impact to their business of the changes, you’ll want to talk through the implications of this and the options available to them. Will their existing scheme allow the business to meet the requirements of the legislation, and the profile and needs of the employees?
Our Automatic Enrolment Planner tool will help you with this as it demonstrates where the employer is now, and where they need to get to, as well as showing how the situation may vary across different employee bands.
If your client’s existing scheme does not fulfil their legislative obligations then it will be necessary to carry out a review of the pension scheme(s) offered.
The main decision will be to decide what type of scheme(s) to offer. There are three key questions which would be worth asking of your client’s business:
Will a low level of investment choice and basic service be acceptable to your client’s business and their employees?
How many staff would exceed the current annual contribution limit of £4,600 for the National Employment Savings Trust (NEST) scheme?.
How important is it to the business to offer a high quality pension scheme for staff recruitment and retention?
In many cases, the employer’s needs will be fully met through a Scottish Widows product. In some situations however a single provider will not always be the most effective route and segmentation of the workforce may be the optimum solution.
STEP 3: ASSESS THE FINANCIAL IMPACT OF THE LEGISLATION ON YOUR CLIENTS
There are a number of specific issues which could have a financial impact on your client’s business, depending on how close their current pension scheme is to the new requirements:
• Contribution rate
The minimum contribution rate (at the end of the phasing in period) will be 3% of qualifying earnings for employers, and a total of 8% including employee contributions and tax relief.
• Qualifying earnings
Contributions are payable on qualifying earnings.
The minimum threshold for 2014/15 is £5,772 and the upper limit is £41,865.
• Postponement
Most employer pension arrangements are only open to staff after they have been employed for a period, because a proportion may leave employment in the early months. Employers will be allowed to use a postponement of up to three months before an employee needs to be automatically enrolled. Individuals may, however, opt in to a scheme during that time.
• Effect of Automatic Enrolment
It is likely that Automatic Enrolment will substantially increase membership of many pension arrangements.
We have produced an Automatic Enrolment Planner tool which will help you look at the financial impact of these requirements on a particular scheme, and to identify any changes which the business may have to make in order to meet them.
It is also worth considering the administration requirements of the legislation and as a consequence of increased take up rates. Additional staff resource or systems may be required.
STEP 4: HELP YOUR CLIENTS PREPARE FOR THE LEGISLATION
Once you have prioritised your clients and identified the impact to their business of the changes, you’ll want to talk through the implications of this and the options available to them. Will their existing scheme allow the business to meet the requirements of the legislation, and the profile and needs of the employees?
Our Automatic Enrolment Planner tool will help you with this as it demonstrates where the employer is now, and where they need to get to, as well as showing how the situation may vary across different employee bands.
If your client’s existing scheme does not fulfil their legislative obligations then it will be necessary to carry out a review of the pension scheme(s) offered.
The main decision will be to decide what type of scheme(s) to offer. There are three key questions which would be worth asking of your client’s business:
Will a low level of investment choice and basic service be acceptable to your client’s business and their employees?
How many staff would exceed the current annual contribution limit of £4,600 for the National Employment Savings Trust (NEST) scheme?.
How important is it to the business to offer a high quality pension scheme for staff recruitment and retention?
In many cases, the employer’s needs will be fully met through a Scottish Widows product. In some situations however a single provider will not always be the most effective route and segmentation of the workforce may be the optimum solution.
Segmentation can deliver greater benefits where there is a large contribution differential between the higher and lower paid employees. The employer and adviser can decide how best to segment a workforce and which provider(s) to use to meet their needs.
A segmented approach with Scottish Widows means that for mid to high earners we can continue to offer:
• A broader and more sophisticated proposition which will often be used in conjunction with the services of a financial adviser.
• Bespoke employee education and engagement as part of the wider employee benefit package specific to that employer.
• Broader education and engagement across the broader spectrum of retirement planning products, assets and considerations more generally (i.e.
mymoneyworks).
Benefits of a segmented approach:
• Key employees get access to a bespoke proposition designed for them at a low cost (with no need to cross subsidise their lower paid and more transient colleagues).
• Lower paid and more transient staff are not paying a higher charge in respect of product features and services which they may not use or benefit from.
STEP 3: ASSESS THE FINANCIAL IMPACT OF THE LEGISLATION ON YOUR CLIENTS
• Effect of Automatic Enrolment
It is likely that Automatic Enrolment will substantially increase membership of many pension arrangements.
We have produced an Automatic Enrolment Planner tool which will help you look at the financial impact of these requirements on a particular scheme, and to identify any changes which the business may have to make in order to meet them.
It is also worth considering the administration requirements of the legislation and as a consequence of increased take up rates. Additional staff resource or systems may be required.
STRAIGHT TALKING, INNOVATIVE EMPLOYEE COMMUNICATIONS
Communicating the changes to employees will be crucial.
We can help employers to promote their scheme to their employees, if they meet our criteria. As well as the more traditional methods of delivering communications we also offer a range of off-the-shelf multimedia items including:
• Employee information packs and promotional material available
• Posters, e-mailers and desk drops
• User friendly microsite which navigates employees to the key information on their company pension and provides access to our online tools and
member services
For larger schemes we can even work with you to develop a bespoke communications plan tailored to your specific requirements.
We offer a range of branding options and have an extremely flexible approach.
WORKING WITH THIRD PARTY SUPPLIERS
Some employers may choose to use a different company to provide their Automatic Enrolment software.
We can work with this provider/adviser to allow our administration to work smoothly alongside this software.
The diagram below shows how the online software will work:
HOW WE CAN HELP
We’ll keep you informed via our website – www.scottishwidows.co.uk As well as updated information on the legislation we also provide online guidance and tools to help ensure your business is fully prepared. We have an Automatic Enrolment website where you can find everything you need to help you prepare your business. Please visit us at
www.scottishwidows.co.uk/pensionsreform
CHECKING YOUR STAGING DATE
Employers will be brought into the regime gradually to facilitate a smooth take-on of employers by the Pensions Regulator. For full details of the staging dates, please visit www.thepensionsregulator.gov.uk/employers/
tool/staging-date
IDENTIFYING THE POTENTIAL FINANCIAL IMPACT OF THE NEW LEGISLATION ON YOUR CLIENTS’ BUSINESS
To help you assess the financial impact of Automatic Enrolment on your clients you can use our Automatic Enrolment Planner. You can access this at:
http://www.scottishwidows.co.uk/extranet/financial- planning/pension-planning/ae-planner
You should also consider the costs that might arise due to any additional administration that may be required to comply with the new legislation.
SUPPORT FOR THE AUTOMATIC ENROLMENT PROCESS
The rules governing Automatic Enrolment are quite complex and employers can face fines if they don’t comply. We are committed to supporting employers by helping them to identify eligible employees, those who require to be offered membership and those who are due for re-enrolment. We will also assist with checking whether the contribution rates meet the minimum requirements and in calculating the contributions due in respect of each employee.
AssistMe
We have invested in the research and development of our Automatic Enrolment solution, AssistMe.
AssistMe enables employers to manage their workforce’s pensions through a single interface which is designed to work with their own systems.
AssistMe will help employers in several key areas –
• Assistance with compliance
The Automatic Enrolment legislation is a legal requirement for all employers. AssistMe can help them comply fully and comprehensively with the complex legislation and will:
– apply Automatic Enrolment rules, with the ability to set employer specific parameters
– act as a database to record opt in/opt out status, eligibility status, contribution levels and to trigger three year re-enrolment
– create and pre-populate mandatory communications
– provide reporting and MI capability to provide necessary audit trail to demonstrate compliance to The Pensions Regulator.
• Administration support
AssistMe can help to reduce the administration costs and help to improve efficiencies for employers and can receive data from employer HR and payroll systems.
Support
AssistMe allows for the simple, streamlined
implementation and ongoing administration of automatic enrolment for you and your clients.
However, we understand the importance of being able to pick up the phone and speak to someone you know if you have any questions. We have put in place a dedicated team of automatic enrolment experts who will work closely with your clients to help ensure a smooth, straightforward scheme implementation.
Once the scheme is implemented your clients will have access to our intuitive online Support Centre for any queries they might have regarding the ongoing administration of the scheme. Alternatively, if they prefer they can call our dedicated Automatic Enrolment Support Team (AEST) who will be happy to help.
STRAIGHT TALKING, INNOVATIVE EMPLOYEE COMMUNICATIONS
Communicating the changes to employees will be crucial.
We can help employers to promote their scheme to their employees, if they meet our criteria. As well as the more traditional methods of delivering communications we also offer a range of off-the-shelf multimedia items including:
• Employee information packs and promotional material available
• Posters, e-mailers and desk drops
• User friendly microsite which navigates employees to the key information on their company pension and provides access to our online tools and
member services
For larger schemes we can even work with you to develop a bespoke communications plan tailored to your specific requirements.
We offer a range of branding options and have an extremely flexible approach.
WORKING WITH THIRD PARTY SUPPLIERS
Some employers may choose to use a different company to provide their Automatic Enrolment software.
We can work with this provider/adviser to allow our administration to work smoothly alongside this software.
The diagram below shows how the online software will work:
mymoneyworks
In Scottish Widows most recent Workplace Savings Report, the findings indicated that a company pension came in third behind the State Pension and ISAs in terms of providing an income in retirement.
This means employees are thinking about a range of options when planning for retirement and balancing long term retirement planning with more immediate financial challenges. For these reasons, Scottish Widows has extended its pensions offering for employers and employees to include a web based financial service called mymoneyworks, which now includes a range of savings offers. mymoneyworks allows employees to have ISAs and pensions in one place so it is easier to keep abreast of their financial planning. The range of products available through mymoneyworks includes:
• Retirement Planning
• Corporate ISAs
• Savings Accounts
Payroll
HOW WE CAN HELP
AssistMe
We have invested in the research and development of our Automatic Enrolment solution, AssistMe.
AssistMe enables employers to manage their workforce’s pensions through a single interface which is designed to work with their own systems.
AssistMe will help employers in several key areas –
• Assistance with compliance
The Automatic Enrolment legislation is a legal requirement for all employers. AssistMe can help them comply fully and comprehensively with the complex legislation and will:
– apply Automatic Enrolment rules, with the ability to set employer specific parameters
– act as a database to record opt in/opt out status, eligibility status, contribution levels and to trigger three year re-enrolment
– create and pre-populate mandatory communications
– provide reporting and MI capability to provide necessary audit trail to demonstrate compliance to The Pensions Regulator.
• Administration support
AssistMe can help to reduce the administration costs and help to improve efficiencies for employers and can receive data from employer HR and payroll systems.
Support
AssistMe allows for the simple, streamlined
implementation and ongoing administration of automatic enrolment for you and your clients.
However, we understand the importance of being able to pick up the phone and speak to someone you know if you have any questions. We have put in place a dedicated team of automatic enrolment experts who will work closely with your clients to help ensure a smooth, straightforward scheme implementation.
Once the scheme is implemented your clients will have access to our intuitive online Support Centre for any queries they might have regarding the ongoing administration of the scheme. Alternatively, if they prefer they can call our dedicated Automatic Enrolment Support Team (AEST) who will be happy to help.
SCOTTISH WIDOWS FINANCIAL STRENGTH
Each time you make a recommendation to your client you need to be confident the provider you’ve suggested will be around for a very long time. After all, it’s your reputation and client relationship that’s at stake. You need to be sure the providers you recommend will be around to pay out benefits not just tomorrow, but many years down the line.
We’ve been around for almost 200 years now and we aim to be helping intermediaries like you throughout the next 200.
Financial strength has always been important when recommending a provider. But in today’s uncertain economic climate it’s key.
But it’s not only economic uncertainty you need to be sure providers can cope with. There’s also a huge amount of change happening within our industry. All of which requires millions of pounds of investment to make happen – Automatic Enrolment and Solvency II are just a couple of examples.
Ratings agencies
There are now several ratings agencies which express an opinion on the financial strength of UK life companies.
Our ratings as at December 2013 are below.
Financial strength facts
When measuring financial strength, we like to stick to the financial facts rather than opinions. As at 31 December 2012 we have free capital of over £3.9 billion and a free capital ratio (that’s our free capital expressed as a percentage of our liabilities) of 21.8%. We think that makes us a sound option for you and your clients.
As well as a range of products mymoneyworks gives employees access to guidance and tools to help them plan for a better financial future. Meeting the needs of employees mymoneyworks is needs based, which simply means we always start with the needs of the individual employee. mymoneyworks helps them construct a meaningful picture of their finances, taking into account existing savings or benefits. It helps them assess their priorities and provides them with the information they might need to decide what financial products could be right for them. For those with more complex needs or perhaps lacking the confidence to make important decisions, further help is at hand.
Genuine guidance
As mymoneyworks is an integral part of our Group Personal Pension proposition, to operate successfully it does not have to rely on the sale of other types of products.
This allows us to offer impartial guidance on other aspects of an employees’ finances, and thereby provide a financial service that operates with real integrity.
At work and at home
We recognise that convenience is important to employees and for that reason mymoneyworks can be accessed either at work or through a personal computer at home. None of the employee’s details can be seen without their personal log-in details.
WE TAKE PRIDE IN ADDING THE PERSONAL TOUCH
Our company pension proposition is designed to meet the needs of your business and your clients and focuses on service, technology, investment expertise and marketing consultancy.
• On-call team to handle all types of technical or communication issues
• Dedicated, ongoing member communications including a unique, jargon-free enrolment pack
• Online member support
• Unique investment decision tool that helps employees make their own investment decisions
• Marketing consultancy service to help you meet the scheme’s objectives
INVESTMENT EXPERTISE WITH WIDE APPEAL TO ALL CUSTOMERS
We offer a segmented approach to investment for scheme members. This begins with our core Pension Investment Approaches, a wide range of self-select funds and access to our Self Investment Option.
You can set up your own bespoke approach, using our Pension Investment Approaches as a basis.
Our fund monitoring and governance team regularly monitor funds and manager processes, philosophy and performance. We also carry out annual governance of our three core-risk based default options. This review considers the underlying assets, funds and lifestyling approach, to ensure it is still appropriate.
Self Investment
Option
Self-Select Fund Range Scheme Specific Self-Select Fund Range
Bespoke Lifestyle Switching
Core Pension Investment Approaches
SCOTTISH WIDOWS FINANCIAL STRENGTH
Each time you make a recommendation to your client you need to be confident the provider you’ve suggested will be around for a very long time. After all, it’s your reputation and client relationship that’s at stake. You need to be sure the providers you recommend will be around to pay out benefits not just tomorrow, but many years down the line.
We’ve been around for almost 200 years now and we aim to be helping intermediaries like you throughout the next 200.
Financial strength has always been important when recommending a provider. But in today’s uncertain economic climate it’s key.
But it’s not only economic uncertainty you need to be sure providers can cope with. There’s also a huge amount of change happening within our industry. All of which requires millions of pounds of investment to make happen – Automatic Enrolment and Solvency II are just a couple of examples.
Ratings agencies
There are now several ratings agencies which express an opinion on the financial strength of UK life companies.
Our ratings as at December 2013 are below.
Financial strength facts
When measuring financial strength, we like to stick to the financial facts rather than opinions. As at 31 December 2012 we have free capital of over £3.9 billion and a free capital ratio (that’s our free capital expressed as a percentage of our liabilities) of 21.8%. We think that makes us a sound option for you and your clients.
WE TAKE PRIDE IN ADDING THE PERSONAL TOUCH
Our company pension proposition is designed to meet the needs of your business and your clients and focuses on service, technology, investment expertise and marketing consultancy.
• On-call team to handle all types of technical or communication issues
• Dedicated, ongoing member communications including a unique, jargon-free enrolment pack
• Online member support
• Unique investment decision tool that helps employees make their own investment decisions
• Marketing consultancy service to help you meet the scheme’s objectives
INVESTMENT EXPERTISE WITH WIDE APPEAL TO ALL CUSTOMERS
We offer a segmented approach to investment for scheme members. This begins with our core Pension Investment Approaches, a wide range of self-select funds and access to our Self Investment Option.
You can set up your own bespoke approach, using our Pension Investment Approaches as a basis.
Our fund monitoring and governance team regularly monitor funds and manager processes, philosophy and performance. We also carry out annual governance of our three core-risk based default options. This review considers the underlying assets, funds and lifestyling approach, to ensure it is still appropriate.
Self Investment
Option
Self-Select Fund Range Scheme Specific Self-Select Fund Range
Bespoke Lifestyle Switching
Core Pension Investment Approaches
Scottish Widows rating from
Moody’s
A2
Scottish Widows rating from
Fitch
A+
Scottish Widows rating from Standard & Poor’s
A
4. COLLECT EMPLOYEE CONTRIBUTIONS AS SOON AS THEY ARE ELIGIBLE
Employers are now responsible for deducting the contributions from their employees. During the joining window and opt-out period there are also certain time limits for paying the contributions to a scheme.
Employers should understand what impact these will have when they agree the due date(s) for paying contributions to the scheme provider.
5. AUTOMATICALLY ENROL EMPLOYEES INTO THE AUTOMATIC ENROLMENT PENSION SCHEME
While the process of Automatic Enrolment will take up to one month, it will be backdated to the start of the period.
Among other things, this prevents a gap in contributions if an individual moves job. Information provision and Automatic Enrolment can be simultaneous, potentially on day one or at the end of the month. Alternatively, employers using occupational schemes may choose not to provide the information to staff until Automatic Enrolment has happened, or may choose to provide the information and then leave a few days before processing the Automatic Enrolment.
Postponement for Automatic Enrolment
There is an optional Postponement of up to three months before an employee has to be automatically enrolled.
Employees may choose to opt in during this time.
6. PROCESS OPT-OUTS
Employees can’t choose to opt out of the pension until they’ve received the required information and been automatically enrolled. They then have one month to opt out.
In general, employers will be forbidden from providing opt-out forms to their staff. The employee must obtain these from the provider (or the provider must make access available to the member).
APPENDIX I: EMPLOYER RESPONSIBILITIES
There are certain things that employers must do in order to comply with their new duties.
1. SELECT AN AUTOMATIC ENROLMENT SCHEME
Employers are free to select an occupational or personal pension ‘Automatic Enrolment scheme’ to offer their staff, or to go for an alternative such as the Peoples Pension or the NEST scheme (which for this purpose is treated as simply being an occupational scheme).
The main requirements for the scheme are that it must allow Automatic Enrolment and must not force members to make any choices (for example by offering a default investment choice). The scheme must also meet certain qualifying criteria which includes a minimum contribution requirement for defined contribution schemes.
2. PROVIDE INFORMATION TO THE SCHEME
It’s the employer’s responsibility to ensure that employees are automatically enrolled into the scheme.
Employers can choose to postpone the scheme staging date for up to three months. All eligible employees must then be enrolled within one month of this date.
During this period the employer must provide information to the pension scheme. Some of this information is compulsory. This includes the employee’s name, date of birth, National Insurance number and home addresses. Other information is optional, including details of proposed contribution levels.
There is a statutory data protection exemption, so the employer doesn’t need the jobholder’s permission to provide the information. There will also be requirements to provide information to the Pensions Regulator, including details of the Automatic Enrolment pension scheme chosen and action taken to auto-enrol employees. This must be within four months of the staging date. There is also an ongoing (three yearly) requirement to provide the Pensions Regulator with Automatic Enrolment information.
For more information please visit
www.thepensionsregulator.gov.uk/automatic- enrolment
3. PROVIDE REQUIRED INFORMATION TO EMPLOYEES WHEN THEY BECOME ELIGIBLE
Within the same timescale as providing information to the scheme, the employer also has to provide information to the employee. This includes details about the Automatic Enrolment process and opt-out rights, plus information about contributions and tax relief. For personal pensions the information provided will also have to include the key features required under FCA rules.
Information required for both occupational and personal pensions
• A statement that the eligible jobholder has/will been/be automatically enrolled into a pension scheme to help save for their retirement.
• The Automatic Enrolment date
• The scheme name and contact details
• The value of contributions in monetary or percentage terms
• Tax relief arrangements
• Opt-out rights and how to exercise them
• The right to opt in at least once in any 12 month period having previously opted out
• Details of Automatic Re-enrolment
• Where to find out about pensions and saving for retirement
Normal scheme disclosure rules will also apply.
Existing scheme members
While no action is needed to enrol existing scheme members, they’ll need to be told that their current pension arrangements meet the new requirements.
There will be two months in which to do this, allowing employers to incorporate it into payslips if they choose to.
4. COLLECT EMPLOYEE CONTRIBUTIONS AS SOON AS THEY ARE ELIGIBLE
Employers are now responsible for deducting the contributions from their employees. During the joining window and opt-out period there are also certain time limits for paying the contributions to a scheme.
Employers should understand what impact these will have when they agree the due date(s) for paying contributions to the scheme provider.
5. AUTOMATICALLY ENROL EMPLOYEES INTO THE AUTOMATIC ENROLMENT PENSION SCHEME
While the process of Automatic Enrolment will take up to one month, it will be backdated to the start of the period.
Among other things, this prevents a gap in contributions if an individual moves job. Information provision and Automatic Enrolment can be simultaneous, potentially on day one or at the end of the month. Alternatively, employers using occupational schemes may choose not to provide the information to staff until Automatic Enrolment has happened, or may choose to provide the information and then leave a few days before processing the Automatic Enrolment.
Postponement for Automatic Enrolment
There is an optional Postponement of up to three months before an employee has to be automatically enrolled.
Employees may choose to opt in during this time.
6. PROCESS OPT-OUTS
Employees can’t choose to opt out of the pension until they’ve received the required information and been automatically enrolled. They then have one month to opt out.
In general, employers will be forbidden from providing opt-out forms to their staff. The employee must obtain these from the provider (or the provider must make access available to the member).
There are two potential methods for an individual to opt out:
• If a paper form is completed, it must be returned to the employer. The employer must check it, and if it’s not right return it to the jobholder. In these circumstances the opt out period is extended to 6 weeks.
• If an electronic form is completed, it can be returned to the scheme but must also be instantaneously transmitted to the employer.
7. REFUND CONTRIBUTIONS OF THOSE WHO OPT OUT
Given the length of the process – possibly two months or longer – it’s very likely that at least one contribution will be collected during it, unless the employee opts out at the first opportunity. Any contributions deducted will have to be refunded.
Any contributions deducted will have to be refunded where the employee opts out during the opt out period.
Responsibility for the refund sits with the employer, who must pay money back to the jobholder and claim it from the scheme if necessary. Scottish Widows will automatically refund the employer when advised of a valid member opt out during the opt out window.
The employer must refund contributions to those who opt out by the later of the next but one payday and one month after opt out.
8. REPEAT THE PROCESS EVERY THREE YEARS FOR THOSE WHO OPT OUT
For those who choose to opt out, the employer must repeat the whole process at three-yearly intervals, to see whether attitudes have changed or lethargy eventually prevails. Employees can be re-enrolled three months before or after the third anniversary of the employer’s original staging date. There will be a single re-enrolment date for each employer, and employees who have opted out in the previous 12 months do not need to be re-enrolled. It will also be possible for an employee to opt in at any stage, but employers are only obliged to arrange for them to become an active member once in any 12 month period.
APPENDIX I: EMPLOYER RESPONSIBILITIES
3. PROVIDE REQUIRED INFORMATION TO EMPLOYEES WHEN THEY BECOME ELIGIBLE
Within the same timescale as providing information to the scheme, the employer also has to provide information to the employee. This includes details about the Automatic Enrolment process and opt-out rights, plus information about contributions and tax relief. For personal pensions the information provided will also have to include the key features required under FCA rules.
Information required for both occupational and personal pensions
• A statement that the eligible jobholder has/will been/be automatically enrolled into a pension scheme to help save for their retirement.
• The Automatic Enrolment date
• The scheme name and contact details
• The value of contributions in monetary or percentage terms
• Tax relief arrangements
• Opt-out rights and how to exercise them
• The right to opt in at least once in any 12 month period having previously opted out
• Details of Automatic Re-enrolment
• Where to find out about pensions and saving for retirement
Normal scheme disclosure rules will also apply.
Existing scheme members
While no action is needed to enrol existing scheme members, they’ll need to be told that their current pension arrangements meet the new requirements.
There will be two months in which to do this, allowing employers to incorporate it into payslips if they choose to.
HOW DOES AN EMPLOYER ENSURE THAT CONTRIBUTIONS MEET THE MINIMUM REQUIREMENTS?
There is a certification process that will simplify the Automatic Enrolment duty for employers who calculate their pension contributions on a different definition of pensionable pay than qualifying earnings:
• If the scheme provides for minimum contributions for each jobholder of at least 9% (4% minimum employer contribution).
• If contributions for each jobholder are at least 8%
(3% employer minimum) and pensionable pay is at least 85% of total pay.
• If there is a minimum contribution of at least 7% for each jobholder, and 100% of pay is pensionable.
WHAT ARE ‘PAY REFERENCE PERIODS’?
Collection of contributions will be based round the individual’s pay reference period. An employer must assess each member of their workforce to identify into which category of worker they are. As part of this assessment, one of the key criteria is whether qualifying earnings are payable in the relevant pay reference period. The pay reference period is either based on tax weeks or months, or is the period of time by reference to which the employer pays the worker their salary. The pay reference period is used to establish if a worker’s eligibility is triggered. The total qualifying earnings paid in the pay reference period in which the assessment day falls is compared to the earnings thresholds.
APPENDIX II: FREQUENTLY ASKED QUESTIONS
WHAT IS AN AUTOMATIC ENROLMENT PENSION SCHEME?
The Government has designed simple qualifying criteria for Company Schemes:
• Does it permit Automatic Enrolment?
• Are eligible employees auto-enrolled within 90 days of joining the company?
• Does it have a default investment fund?
• Does it deliver a minimum accrual rate or minimum contribution?
Money Purchase, Stakeholder & GPP schemes Minimum total contribution of 8% of all earnings between the minimum threshold of £5,772 and the upper limit of £41,865 with at least 3% paid by the company.
If the company scheme passes these relevant criteria, then it will qualify, if it doesn’t then employees must be automatically enrolled into an alternative such as the Peoples Pension or the NEST scheme.
WHO ARE ‘ELIGIBLE EMPLOYEES’?
Employees eligible for Automatic Enrolment will be:
• Those who aren’t already active members of a qualifying scheme; and
• Are aged between 22 years and the State Pension age; and earn over £10,000 gross a year (the income tax personal allowance in 2014/15).
• Work or ordinarily work in Great Britain.
WHAT ABOUT EMPLOYEES WHO ARE NOT AUTO-ENROLLED?
There are two groups of workers who will have the right to join an employer-arranged pension scheme, even though they are ineligible for Automatic Enrolment:
Non eligible jobholders:
Those aged between 16 and 74 with earnings between
£5,772 and £10,000 or aged between 16 and 21 or state pension age and 74 with earnings above £10,000 can opt in to the employer’s pension scheme. If they do, the normal contribution rules apply, including those for the employer. The employer must inform such staff of their rights, and they can opt in through a written instruction to the employer.
Entitled workers:
Those aged between 16 and 74 with earnings below
£5,772 can choose to join a pension scheme through the company they work for. The employer is not obliged to contribute but can do so if they wish. Again, the employer must tell them about their rights, and arrange an appropriate pension scheme if they choose to contribute.
In both scenarios the scheme doesn’t have to be the same scheme as is used for Automatic Enrolment, although in most cases it’s likely to be the same one.
IS IT POSSIBLE FOR THE EMPLOYER TO PAY MORE AND THE EMPLOYEE TO PAY LESS?
Yes, as long as the total contribution is at least the minimum. For example, from October 2018 an employer can pay the full 8% and your employee does not need to make any contribution.
CAN THE EMPLOYER CHANGE THE QUALIFYING PENSION SCHEME?
Yes, but there mustn’t be a long gap. The draft regulations allow for up to a month to finalise
administration. In practice, when an employer decides to change scheme the move is generally immediate with no break in contributions.
HOW DOES AN EMPLOYER ENSURE THAT CONTRIBUTIONS MEET THE MINIMUM REQUIREMENTS?
There is a certification process that will simplify the Automatic Enrolment duty for employers who calculate their pension contributions on a different definition of pensionable pay than qualifying earnings:
• If the scheme provides for minimum contributions for each jobholder of at least 9% (4% minimum employer contribution).
• If contributions for each jobholder are at least 8%
(3% employer minimum) and pensionable pay is at least 85% of total pay.
• If there is a minimum contribution of at least 7% for each jobholder, and 100% of pay is pensionable.
WHAT ARE ‘PAY REFERENCE PERIODS’?
Collection of contributions will be based round the individual’s pay reference period. An employer must assess each member of their workforce to identify into which category of worker they are. As part of this assessment, one of the key criteria is whether qualifying earnings are payable in the relevant pay reference period. The pay reference period is either based on tax weeks or months, or is the period of time by reference to which the employer pays the worker their salary. The pay reference period is used to establish if a worker’s eligibility is triggered. The total qualifying earnings paid in the pay reference period in which the assessment day falls is compared to the earnings thresholds.
WHAT REGULATORY REQUIREMENTS ARE THERE?
Employers will be required to inform the Pensions Regulator about how they have met their obligations within four months of their staging date, and every three years after that. Employers, pension schemes and pension providers will have to retain records for six years, including details of opt-outs.
There will be a fixed £500 penalty for employers who fail to comply, followed by penalties of between £50 and
£10,000 a day for persistent or serious non-compliance, depending on employer size. Various other sanctions for the Pensions Regulator are also being put in place – these are still in consultation and will form part of our future updates once confirmed.
APPENDIX II: FREQUENTLY ASKED QUESTIONS
WHAT ABOUT EMPLOYEES WHO ARE NOT AUTO-ENROLLED?
There are two groups of workers who will have the right to join an employer-arranged pension scheme, even though they are ineligible for Automatic Enrolment:
Non eligible jobholders:
Those aged between 16 and 74 with earnings between
£5,772 and £10,000 or aged between 16 and 21 or state pension age and 74 with earnings above £10,000 can opt in to the employer’s pension scheme. If they do, the normal contribution rules apply, including those for the employer. The employer must inform such staff of their rights, and they can opt in through a written instruction to the employer.
Entitled workers:
Those aged between 16 and 74 with earnings below
£5,772 can choose to join a pension scheme through the company they work for. The employer is not obliged to contribute but can do so if they wish. Again, the employer must tell them about their rights, and arrange an appropriate pension scheme if they choose to contribute.
In both scenarios the scheme doesn’t have to be the same scheme as is used for Automatic Enrolment, although in most cases it’s likely to be the same one.
IS IT POSSIBLE FOR THE EMPLOYER TO PAY MORE AND THE EMPLOYEE TO PAY LESS?
Yes, as long as the total contribution is at least the minimum. For example, from October 2018 an employer can pay the full 8% and your employee does not need to make any contribution.
CAN THE EMPLOYER CHANGE THE QUALIFYING PENSION SCHEME?
Yes, but there mustn’t be a long gap. The draft regulations allow for up to a month to finalise
administration. In practice, when an employer decides to change scheme the move is generally immediate with no break in contributions.
