Auto enrolment knowledgebase

  • 01

    About workplace pensions

  • Is everyone being enrolled into a workplace pension?

    Starting from October 2012 (very large employers first), every employer has to enrol into a workplace pension, workers who:
    • are not already in a qualifying workplace pension scheme;
    • are aged 22 or over;
    • are under State Pension age;
    • earn more than a minimum amount (£9,440.00 a year in 2013-14); and
    • work or usually work in the UK.

    I meet the criteria, when will I be enrolled?

    If you meet the criteria above (Q1), the timing of when your employer will enrol you into a workplace pension depends on their size. Very large employers are doing it first, in late 2012 and early 2013. Other employers will follow sometime after this, over several years. Your employer will give you the exact date nearer the time.

    What if I don’t meet the criteria to be enrolled?

    If you don’t meet the criteria above when your employer starts enrolling workers, you will not be automatically enrolled into a workplace pension. However, you may be able to join the pension scheme if you want, if you are not already a member. Your employer will let you know (so long as you’re 16 or over, and under 75).
    If you meet the criteria at a later date, for example you turn 22 or you start to earn more, and you are not already a member, then your employer will automatically enrol you.

    Why is this happening?

    The aim is to help more people have another income, on top of the State Pension, when they retire.
    The State Pension is a foundation for your retirement. If you want to have more, you need to save during your working life. Otherwise, you may reach retirement facing a significant fall in your standard of living. The full basic State Pension in 2013/2014 is £110.15 a week for a single person.
    The government is getting employers to enrol their workers automatically into a pension at work so it is easier for people to start saving.
    You can opt out if you want to, but if you stay in you will have your own pension which you get when you retire.

    Who will pay into the pension?

    You will pay into it. Your employer will pay into it too. They have to do this if you earn more than a certain amount (£5,668.00 a year in 2013-14). Plus most people will get a contribution from the government in the form of tax relief. This means some of your money that would have gone to the government as tax, goes into your pension instead.

    How much will I get from my workplace pension when I retire?

    SIt’s possible to get an idea of how much you will get from your workplace pension by getting a ‘pension estimate’ (also sometimes known as a ‘pension projection’). You can get this from whoever runs your pension scheme.
    They may also have an online calculator that can help you work out the income you may get when you retire.

    Will it be enough?

    Being in a workplace pension means you’ve taken an important step towards giving yourself the lifestyle you would like in later life. You may want to start thinking about the things you will need money for in retirement such as paying bills, transport and buying food, and the things you may also want to do such as:
    • Run a car;
    • Meet friends for lunch or drinks;
    • Buy gifts for your family or friends;
    • Go on days out/holidays;
    • Do sport or other leisure activities.
    Once you have an estimate of how much you can expect to get from your workplace pension you can think about whether it will be enough.
    If you’re concerned you will not have enough, you could think about contributing more to your pension, working longer, and/or saving in other ways. You can find out more about your options at: www.gov.uk/plan-retirement-income

    What if I move jobs?

    You may be automatically enrolled into a new workplace pension. This will depend on the size of your new employer, when you move, and if you meet the criteria listed in question one. Very large employers will automatically enrol all new workers who meet the criteria from late 2012/early 2013 onwards. Smaller employers will follow sometime after this.
    If your new employer has a workplace pension but they don’t automatically enrol you, they may give you the option of joining if you want.
    If your new employer doesn’t automatically enrol you, this will be because of one or both of the following reasons:
    • they are not yet required to do so; or
    • you don’t meet the criteria listed at question one.
    If you start a new pension (either ‘workplace’ or ‘personal’), you may be able to combine your old pension with your new one. Your new pension scheme provider will be able to tell you if this is possible and, if so, how to go about doing it.
    Or if you want to, you might be able to continue making contributions to your old pension scheme after you’ve left your job. You would need to contact whoever runs your pension scheme to find out if this is possible, if there will be a cost involved and if you will get tax relief.
    If you can’t or don’t want to do either of these options, then what happens to your pension depends on the scheme rules. Check with whoever runs your pension scheme.
    Nowadays lots of people move jobs several times in their working lives, so it’s important to keep track of the pensions you have. Keeping your statements will help you do this. If you have lost track of a pension, the government’s Pension Tracing Service could help provide you with the contact details for that pension.
    Website: www.gov.uk/find-lost-pension

    What if I leave my job to become self-employed or stop working?

    You should think about what income you’ll have to live on in later life. Your employer will stop paying into your workplace pension, but you might be able to continue contributing, if you want. You would need to contact whoever runs your pension scheme to find out if this is possible and if there will be a cost involved.
    Alternatively, you might want to set up your own personal pension, or put other plans in place to give you an income when you retire.

    What happens to my pension if I die before retiring?

    The rules vary depending on the type of scheme. Find out from whoever runs your pension whether you can nominate (choose) someone to receive the money if you die and how much they would get.
    If you can nominate someone, whoever runs your pension should ask you to confirm in writing who that person is when you first join the pension.
    If they don’t do this, you should ask them for a nomination form. You can change your nomination at any time. It’s important to review it if your circumstances change.
    Please note: although in most cases the money will go to whoever is nominated, organisations who run pension schemes are allowed to pay it to someone else if this is needed. For example, if the person nominated cannot be found or has died.

    Can I take the money out?

    Currently, most people can’t take money from any pension scheme until they are aged at least 55. The exact age you get your pension depends on the rules of the scheme. To find out, check with whoever runs your pension scheme.

    I’m paying into a personal pension already, what should I do?

    It’s possible to have both a workplace pension and your own personal pension, so you could choose to continue paying into both. Or you might choose to continue with just one of them. It depends on your circumstances – for example, what you can afford and what your personal and workplace pension schemes are offering. With your workplace pension, you will receive a contribution from your employer that you won’t get with your own personal pension. However, your own personal pension may have a guarantee about future income.
    If you’re considering this question, The Pensions Advisory Service might be a good place to start. The Pensions Advisory Service is an independent voluntary organisation which provides free information about pensions:
    Website: www.pensionsadvisoryservice.org.uk

    I had a workplace pension in a previous job, what should I do about that?

    You could leave it where it is. You will get it when you retire, so long as you were in the pension scheme long enough. The length of time needed will be in the pension scheme rules. Or you might be able to combine it with your new workplace pension. If you’re considering doing this, you need to check with your current pension provider that it’s possible and, if it is, how to go about doing it.
    If you need help with your pension options, please call Nikki or Neil on 0845 470 4918 or email neil.mutton@qnapm.com.
    The Pensions Advisory Service website will also provide you with some detail guidance: www.pensionsadvisoryservice.org.uk
    If you have lost track of a pension, the government’s Pension Tracing Service could help provide you with the contact details for that pension.
    Website: www.gov.uk/find-lost-pension


  • 02

    Is it for me?

  • What if I’m not sure it’s for me? I can’t afford it

    For many people, paying into a workplace pension scheme is a good idea – even if they have other financial commitments, such as a mortgage or a loan. This is because you’re not the only one putting money in. Your employer has to contribute too, provided you earn more than a certain amount (£5,668.00 a year in 2013-14).
    Most people will also get a contribution from the government in the form of tax relief. This means some of your money that would have gone to the government as tax, goes into your pension instead.
    Over time, this money adds up and can grow.
    But you should make sure you can afford to meet your other commitments. If you’re behind on your mortgage, rent, credit card or other debt payments then a pension might not be the right step at the moment. It’s something you should come back to at a later date, once your debts are more under control.
    If you start saving into a workplace pension but then a few months or years later you want to stop paying, you can do so. You might want to check with whoever runs your pension scheme what happens when you stop paying, and how to rejoin.
    You can start paying into your employer’s scheme again at a later date, if you decide you want to. Your employer has to accept you into their pension scheme once in every twelve month period. This means if you leave, join, then leave again within twelve months your employer does not have to accept you a second time. But they can choose to do so.
    If you opt out or you stop making payments, your employer will automatically enrol you back into their pension at a later date. This is usually every three years. This is because your circumstances may have changed and it may be the right time for you to start saving. Your employer will contact you and you can choose to stay in the workplace pension or opt out.
    If you’re struggling with debts and would like advice on how to manage your money, you might find the Money Advice Service a good starting point.
    Website: www.moneyadviceservice.org.uk

    What if I’m not sure it’s for me? I don’t need to start saving for my pension yet

    It may seem early to start planning for later life, but remember you could have twenty years of retirement and you will need an income. A workplace pension is one way to provide that income. Usually, the younger you are when you start paying into a pension the better. The money has more time to grow.
    So even if it’s only a small amount, the money you put away early in life can build up over time.

    What if I’m not sure it’s for me? It’s too late for me

    Being in a workplace pension is worth considering, even if you think you’re too old. Unless your retirement is just a few weeks away, there’s still time to build up some money.
    Unlike other ways of saving, being in a workplace pension means you’re not the only one putting money in. Your employer has to contribute too, provided you earn more than a certain amount (£5,668.00 a year in 2013-14).
    Most people will also get a contribution from the government in the form of tax relief. This means some of your money that would have gone to the government as tax, goes into your pension instead.
    If, when you retire, your pension savings are not more than a certain amount, you might be able to take it as a cash lump sum (instead of a regular income). To find out if this is possible, and if so, the amount and other rules, check with whoever runs your pension scheme.

    Are pensions safe?

    No savings, including pensions, are ever entirely risk-free. However, the government has put an increasing number of controls in place designed to minimise the risks. This means your money is better protected than in the past.
    The Pensions Regulator regulates workplace pensions
    Website: www.thepensionsregulator.gov.uk
    The Financial Services Authority (FSA) regulates the providers of personal pensions
    Website: www.fsa.gov.uk
    There’s no perfect answer for where to put your money for later life. Each type of saving and investment works differently and has its own pros and cons. But for most people it’s better to do something, such as pay into a workplace pension scheme, than do nothing.

  • 03

    More about workplace pensions

  • How is the money invested?

    With a Defined Contribution workplace pension (see Key fact 4, page 12 for an explanation of Defined Contribution), the contributions you and your employer pay in, plus the contribution from the government in the form of tax relief*, go into your pension pot.
    Your pension pot is put into various types of investment, such as shares (shares are a stake in a company). It is expected to grow over time.
    Your pension pot is invested in this way because in the long run it usually gives a better return than a savings account.
    With some workplace pension schemes, you may be able to make decisions about how your money is invested. But you don’t have to – all pension providers have to offer a fund that meets the needs of most people and this is where your money will be automatically invested. Whoever runs your pension scheme will have more information on this.
    The earlier you start putting money into your workplace pension, and the more you and your employer put in, the more money you’re likely to have at the end.

    With a Defined Benefit workplace pension (see Key fact 4, page 12, for an explanation of Defined Benefit), the amount you get at retirement is based on various factors. These could include your earnings and how long you have been a member of the pension scheme. How exactly it is worked out varies from scheme to scheme – whoever runs your pension will have information on this.

    Can the value go down as well as up?

    With Defined Contribution workplace pensions (see Key fact 4, page 12, for an explanation of Defined Contribution), your pension pot is put into various types of investment, such as shares (shares are a stake in a company).
    Your pension pot is invested in this way because in the long run it usually gives a better return than a savings account. Over the years, the value of investments can go up and down. But even if the value goes down in the short term, it is likely to recover in the long term.
    As you approach retirement, you may be asked if you want your pension pot moving into investments less likely to reduce in value in the short-term. (This is called lifestyling). Some pension schemes do this automatically. You can check with whoever runs your pension if this applies to your scheme.

    With Defined Benefit workplace pension schemes (see Key fact 4, page 12, for an explanation of Defined Benefit) the amount you get at retirement is based on various factors. These could include your earnings and how long you have been a member of the pension. How exactly it is worked out varies from scheme to scheme and could change over time.

    Could I lose my pension if my employer goes bust?

    If you have a Defined Contribution workplace pension (see Key fact 4, page 12, for an explanation of Defined Contribution), your pension pot is looked after by whoever runs your pension scheme. This is usually a pension provider, so if your employer goes bust you won’t lose your pension pot.
    If a pension provider cannot pay, there are a number of organisations who might be able to help. For example, if the provider was authorised by the Financial Services Authority, the Financial Services Compensation Scheme (FSCS) can provide compensation. This will generally be because the provider has stopped trading and/or is unable to pay its debts. For more information visit: www.fscs.org.uk

    If your pension scheme is run by your employer (on a ‘trust’ basis)* and they go bust, your pension pot might be smaller than it would have been. This is because, if your employer has been paying the pension scheme administration costs, they will no longer be doing so. These costs would now come from the scheme members’ pension pots.

    If you have a Defined Benefit workplace pension (see Key fact 4, page 12, for an explanation of Defined Benefit) your employer is required to make sure their scheme has enough money to pay workers’ pensions.
    The Pension Protection Fund was set up in April 2005 to protect you if your employer goes bust and the pension scheme does not have enough money to pay your promised pension.
    For people who have reached their scheme’s pension age the Pension Protection Fund will generally pay 100 per cent compensation. For most people below the pension age, the Pension Protection Fund will generally pay 90 per cent compensation.
    For more details on compensation visit: www.pensionprotectionfund.org.uk

  • 04

    Employers – Why you need a scheme

  • What are the changes?

    You must automatically enrol certain members of your workforce into a pension scheme and as an employer you will need to make a contribution towards it.

    The law came into force for large employers from 2012 and smaller employers will follow.

    Even if you already offer pension arrangements for your workers, you’ll still have some new obligations to meet.

    What do I have to do?

    The main things you must do are:

    provide a qualifying scheme for workers
    automatically enrol all eligible jobholders onto the scheme
    pay employer contribution for eligible jobholders to
    the scheme
    tell all eligible jobholders that:
    they have been automatically enrolled and
    they have the right to opt out if they want to do so
    register with us and give us details of your qualifying scheme and the number of people that you have automatically enrolled.

    What is my staging date

    The new employer duties are being introduced over 6 years, starting with the UK’s largest companies in 2012.

    The date when the law is ‘switched on’ for your business is known as your ‘staging date’.
    To find out your staging date, you’ll need to know your employer PAYE reference. You can find this on your last P35 (Employer Annual Return) or P30BC payslip booklet.

    Who does this apply to?

    As an employer, you’ll have new duties in relation to everyone working for you:

    • who is aged between 16 and 74
    • who works in the UK
    • for whom you deduct income tax and National Insurance contributions from their wages.

    In this tool, we’ll refer to these people as your ‘staff’.

    Your duties depend on the ages and earnings of your staff on your staging date.

    What’s the minimum employer contribution?

    You will have to make regular payments into the pension schemes of all staff who you automatically enrol and all those who choose to opt in.

    The law has set a minimum level for employer contributions. To work out the minimum amount you’ll have to pay for an individual staff member, you’ll need to know their gross earnings, so it’s important you know what we mean by this.

    Who should be automatically enrolled?

    Automatic enrolment is the main employer duty under the new laws on workplace pensions. It’s called Automatic enrolment because employers will need to enrol certain staff into a pension scheme ‘automatically’, without those staff having to do anything.
    You must automatically enrol everyone working for you:

    • who is aged between 22 and state pension age
    • who works in the UK
    • for whom you deduct income tax and National Insurance contributions from their wages
    • who is likely to have gross earnings over £9,940 in a year.

    Step 1: You will need a pension scheme

    To be able to fulfil your Automatic enrolment duties, you’ll need to put a pension scheme in place. It’s important that you choose the right one.

    You may wish to get advice from an adviser authorised by the Financial Services Authority. We’ve provided a link at the end of this tool that can help you find an adviser.
    Existing pension schemes

    You might already have a pension scheme for your staff. You might recognise it as a stakeholder scheme or a group personal pension scheme.

    If you find you already have a pension scheme in place and want to use it, you’ll need to check with your scheme provider whether it can be used for Automatic enrolment. If not, you may need to choose a new pension scheme.

    Step 2: Providing information

    Once you have a scheme in place, there are a few things you’ll need to do.

    Provide information to the scheme provider about the staff you’ll be automatically enrolling, such as their:

    • name
    • address
    • date of birth
    • National Insurance number.

    Provide staff with specific information about:

    • Automatic enrolment
    • their right to opt out after they’ve been enrolled.

    If your scheme is a ‘personal pension scheme’ you’ll have one more step:

      Make sure that the provider has sent the scheme’s terms & conditions to each person you’ll be automatically enrolling.

    This is a vital part of the process as it sets up the policy between the provider and your staff member. Without it, you won’t have fulfilled your duties.

    Step 3: Processing opt outs

    Staff have the right to ‘opt out’ of pension scheme membership after they’ve been automatically enrolled.

    If a member of staff decides to opt out, they must complete a form called an ‘opt-out notice’, which they get from the pension scheme, and give it to you.

    They will only have 1 month after being automatically enrolled to opt out. If they do, they will be treated as though they had never been in the pension scheme. Any contributions made to the scheme will be refunded.

    After the end of the 1-month opt-out period, staff are, of course, free to leave the scheme at any time.

    Important: Opting out only applies to staff. You cannot opt out of your employer duties.
    If you receive an opt-out notice you must:

    • make sure the notice is fully completed and signed
    • send the opt-out notice to the scheme and keep a record of it yourself
    • stop the deduction of pension contributions for that staff member with immediate effect
    • refund any contributions already deducted to the staff member in the next payroll
    • arrange with the scheme for a refund of any employer contributions you’ve made for that staff member.

    Summary
    This question has told you:

    • which staff you’ll need to automatically enrol
    • that you’ll need to have a pension scheme in place to meet your Automatic enrolment duties
    • the process you’ll need to follow to automatically enrol staff
    • the actions you’ll need to take if you receive an opt-out notice.

    Your ongoing responsibilities

    After you’ve automatically enrolled your staff, you’ll need to pay regular employer and any staff contributions into the pension scheme. Your trustees or scheme provider (as applicable) will tell you how much these contributions will be and when you need to pay them.

    Every 3 years, you’ll have to re-enrol any staff still working for you who previously opted out (if they still qualify for Automatic enrolment).

    You’re also required to register with us within four months of your staging date and provide details of how many staff you’ve automatically enrolled.

  • 05

    Employers – Setting up

  • What Types of scheme are there?

    Knowing what kind of work-based pension scheme you offer is important. It affects the things you have to do to comply with pension legislation, and the things you can do to help your scheme run smoothly.

    The choice of which scheme to offer is an employer’s.

    Defined benefit (DB) schemes
    A defined benefit scheme is a scheme in which the benefits are defined in the scheme rules and accrue independently of the contributions payable and investment returns.

    Defined contribution (DC) scheme
    Read about the role of the employer in defined contribution schemes (also known as money purchase), and how you can help your employees make the right decisions.

    Hybrid schemes
    A hybrid scheme is a mixture of defined benefit (DB) and defined contribution (DC). Occupational pension schemes that feature hybrid structures can be complex.

    Contract-based DC schemes
    In a contract-based scheme (also known as a group personal pension) an employer appoints a pension provider, often an insurance company, to run the scheme.

    Stakeholder pensions
    With the introduction of Automatic enrolment, the requirement for an employer to provide access for employees’ to a stakeholder pension scheme has been removed to avoid employers being subject to overlapping duties.

    What makes a good scheme?

    It’s important that your pension scheme helps your staff to get a good deal from their retirement savings. The scheme should also meet your needs as an employer.

    If you don’t already have a scheme, you will need to set one up to meet your automatic enrolment duties. It’s likely that you will choose a defined contribution (DC) scheme.

    There are a number of areas that you should focus on if you are selecting a new DC scheme including:

    • value for money
    • whether those running the scheme are capable of doing so
    • asset protection
    • flexible contribution levels
    • record-keeping
    • support with choosing a retirement option.

    We’ve put together some questions you can ask when selecting a pension product for Automatic enrolment.

  • 06

    Employers – Running a Scheme

  • Does your existing scheme qualify?

    You’ll need to review your pension arrangements. You might have an existing scheme that you can use or adapt for Automatic enrolment, or you may need to set up a new one.

    Many work-based pension schemes will qualify.

    Reviewing your scheme
    Even if your scheme doesn’t qualify at the moment, you may be able to change the scheme rules or amend the terms of the policy so that you’ll be able to use it by the time your staging date comes around.

    Do I need to tell my employees?

    It’s important that you communicate clearly to your employees, so they understand their options and are able to make sound decisions about their retirement savings.

    Your company’s pension scheme is a valuable part of your employment package. We have provided information about general communications and retirement choices.

    General communications
    Clear and simple communications are particularly important in DC schemes where many important decisions are made by the members themselves.

    Yet many members don’t understand pensions. They may well make poor decisions, or take no action at all, relying on default options. And the consequences will be fully borne by the members themselves.

    By supporting members with clear, simple and helpful information, you can help them get the best out of their scheme and better prepare for retirement. You can often achieve this without incurring increased costs.

    While trustees are responsible for scheme communications to members (and must comply with the relevant disclosure regime), employers have recognised that it benefits them as well as members if there is improved member understanding.

    For example:

    • greater appreciation of the benefits of the scheme
    • more members will have realistic expectations as to the level of income they will have in retirement
    • more members are prepared ahead of time for the decisions they will need to make at retirement.

    Employers, trustees or managers have a shared interest in seeing that:

    • members are engaged and motivated to plan for their eventual retirement and do not become confused and discouraged
    • the scheme is effective in attracting, motivating and retaining employees
    • unnecessary time and resources are not taken up by ineffective or badly planned communications exercises
    • the requirements of legislation are complied with.

    Trustees need to be aware that the disclosure regulations are legal requirements which set out the minimum information which a member must receive.

    You can help trustees to offer the following support and information through the workplace:

    • online planners
    • workplace presentations
    • scheme newsletters.

    The Department for Work and Pensions has created pension myths (PDF), which explains some of the most common myths about pensions and saving for later life.

    General retirement choices
    At retirement, members of DC schemes are entitled to an open market option. This enables members to shop around to find the most suitable retirement product available on the marketplace.

    Many members will want to convert their fund into a retirement income (ie a pension) through buying an annuity – the most common method of taking retirement income.

    An annuity is an income for life provided by an insurance company. The bigger the pension fund, the bigger the income will be. The income will also depend on factors such as life expectancy, and the interest rates prevailing at the time of retirement.

    Individuals that have certain health conditions or who have made lifestyle choices such as smoking, may be able to obtain enhanced rates from some annuity providers.

    The decisions made at the point of retirement are irreversible and will impact on the income received by individuals (and their dependents) for life.

    You should understand that retirement decisions are complex, involving consideration of both the type of annuity and the choice of provider offering the best level of income and alternative retirement options.

    You can help members – your employees – by providing them with access to financial advice, or help with the cost of seeking advice, that may help them with choosing a course of action that provides a good return from the proceeds of their pension fund.

    There is no legal requirement to give access to financial advice. However, where members do get advice from an authorised adviser, they will be given an explanation of the options that apply to them. Also, if things go wrong, the member will have some protection under FSA rules.

    How do I tell them?

    One of your employer duties relating to Automatic enrolment is that you are required by law to provide in writing – the right information, to the right individual, at the right time.

    This includes all your workers (except those aged under 16, or 75 or over), which can include fixed-term contract workers, and not just those who want to opt out.

    Must I register my scheme?

    All employers with workers in the UK are required to tell The Pensions Regulator what they have done to comply with their new employer duties.

    This is known as ‘registration’ and needs to be done within four months of an employer’s staging date. Registration allows us to understand where employers are having difficulty in meeting their duties so we can provide the right help. It also helps us to see where employers are failing to comply.

    How do I register?

    Registration is a secure, online process. It’s accessed through the Government Gateway, so you’ll need a Government Gateway User ID to register. You can either log in with your existing Government Gateway User ID or, if you don’t have one, you’ll be able to create one when you log in to Automatic enrolment registration for the first time.

    You will also need your unique letter code, which you can find on correspondence from the regulator relating to Automatic enrolment, and details of all PAYE schemes that you use.

    Who can complete registration?

    It’s the employer’s duty to complete registration, but they may authorise someone else to carry out the activity on their behalf, if they prefer. For example, they may choose to use their accountant who already deals with their tax and National Insurance returns for HM Revenue & Customs (HMRC).

    If you’re acting on behalf of an employer, you’ll need to request an employer agent reference number from us. You’ll be prompted to do this when you log in to Automatic enrolment registration for the first time.

    How do I fund the contributions?

    You need to ensure your defined benefit scheme is well funded and that contributions are paid on time. Use our interactive tool to work out your minimum contribution for each person you’ll need to automatically enrol.
    Contributions

    As an employer, you must:

    • pay employees’ contributions to the scheme within 19 days from the end of the month in which they were deducted from pay
    • pay your own contributions in line with the schedule of contributions (DB scheme) or payment schedule (DC scheme).

    If you fail to pay contributions as above, and the failure is likely to be materially significant, The Pensions Regulator must receive a report from the trustees or scheme managers.

    If overdue contributions have still not been paid within a reasonable period after the due date, trustees or managers will need to inform scheme members.

    Scheme money
    Pension scheme money must be kept in a trustee bank account separate from the employer’s account.

    Money can also be held, by someone other than the employer, in a suitable account on behalf of the trustees.

    Employers who pay pensions to members on behalf of the trustees must place the money in a separate bank account if it is not paid to the member within 2 working days of the employer receiving it.

    Investment choices in DC schemes
    In a trust-based scheme, the scheme trustee will determine their investment strategy based on factors such as the membership profile and the scheme deed and rules.

    Although DC members have the ultimate responsibility to choose from among the funds on offer, trustees have responsibility for determining the overall strategy and the funds to be offered.

    The scheme deed and rules will outline any employer responsibilities and those of scheme trustees in relation to decisions about fund choices. Schemes vary, but this usually includes the appointment, review and removal of investment or fund managers and what responsibilities exist in terms of decisions on fund choices.

    The design of the ‘default fund’ is very important because the majority of members are likely to use that fund to accrue their benefits.

    Trustees are required to take professional advice and appoint an appropriately skilled person to invest contributions. The periodic review of both advisers and investment managers is important and is likely to reduce the potential for member dissatisfaction, as well as helping to ensure that the members’ benefits are protected.

    In a well-designed scheme, the number and risk profile of funds on offer should reflect the nature of the membership – especially their level of financial capability. Other factors to consider are:

    age financial position (how dependent will they be on this particular pension, what is their future earning potential?) access to financial advice.

    DB funding
    If you run a DB scheme, you need to be aware that most schemes providing any defined benefits need to meet a statutory funding objective, which assesses the required levels of funding for a scheme.

    As an employer, you’ll need to work closely with trustees to ensure that your scheme meets these funding requirements.

    In particular, you’ll have to agree with the trustees:

    • a statement of funding principles
    • a schedule of contributions consistent with these principles.

    Where the statutory funding objective is not met, you have to agree on a recovery plan setting out the steps that will be taken to put things right.

    Do I have any reporting & regulatory duties?

    In order to identify and reduce the risk to members’ benefits, The Pensions Regulator requires a range of information about pension schemes and employers.

    Sharing information with The Pensions Regulator
    You can share information with us about your work-based pension scheme easily and quickly using Exchange, our online system. You can register your scheme online, submit a scheme return and more – right through to telling us your scheme has wound up.

    The following areas are our the sources of information:

    Registration
    It is the responsibility of the trustees of occupational pension schemes and the managers of personal pension schemes to register the scheme with The Pensions Regulator. You can register your scheme with us by using our online service Exchange. Once registered, you can update your scheme information at any time.

    Registering new pension schemes is important to the regulator. It helps us to maintain a complete and accurate register of pension schemes and to hold up-to-date scheme information. The information contained in the register is used to calculate the levy payable for each scheme and is also used by the Department for Work and Pensions (DWP) Pensions Tracing Service.

    The scheme return
    All schemes are required to complete a regular scheme return.

    This provides us with a wide range of information about schemes, including details of membership, sponsoring employers, trustees, advisers, administration, funding and investment.

    As an employer, you need to ensure that trustees have sufficient information about your company to be able to provide up-to-date, accurate details to the regulator.

    You must continue to provide the trustees and their advisers with any information they reasonably need to carry out their duties.

    Reporting
    Where a breach of the law happens, and it is likely to be materially significant to the regulator, employers and others involved in running the scheme have a legal duty to report the breach to us.
    Notifiable events

    If you run a defined benefit (DB) scheme, you have to tell us without delay about certain ‘notifiable’ events.

    These are specific events which are likely to have a major impact on the security of members’ benefits. Employers must notify us of ‘employer-related’ events – for example, a decision to seek to compromise a debt owed to a scheme.

    Trustees must notify us of ‘scheme-related’ events, such as a significant reduction in scheme membership.

    Paying levies
    All registered pension schemes pay a levy to fund The Pensions Regulator.

    Schemes that are eligible for the Fraud Compensation Fund must also pay a fraud compensation levy as and when necessary.

    Most schemes that provide any defined benefit pension arrangements must pay a levy to a compensation scheme called the Pension
    Protection Fund.

    Amending or winding up your scheme
    If you’re considering making changes to the pension scheme, there are some factors that you must discuss with the trustees.

    You’ll need to:

    • take into account – in consultation with trustees – the requirements about altering pension rights already earned by members consult scheme members if you’re considering changes that might affect their future pension rights. You’ll find more about this in our statement on the employer duty to consult on scheme changes (PDF).
    • If a pension scheme providing any defined benefits starts to wind up while an employer is still solvent, the value of members’ benefits must be calculated using the cost of buying annuities to secure those benefits.
    • If the scheme’s funds are insufficient to secure benefits on this basis, the shortfall is treated as a debt due from the employer to the trustees.
    • As an employer, you must ensure that you are aware of the measures introduced in the Pensions Act 2004 that prevent employers from taking action to avoid their liabilities in these circumstances. You might want to talk to your adviser for guidance on the clearance process.

    What are the retirement options?

    The decisions made at the point of retirement are irreversible and will impact on the income received by individuals (and their dependents) for life.

    You should understand that retirement decisions are complex, involving consideration of both the type of annuity and the choice of provider offering the best level of income and alternative retirement options.
    Buying an annuity

    At retirement, members of DC schemes are entitled to an open market option. This enables members to shop around to find the most suitable retirement product available on the marketplace.

    Many members will want to convert their fund into a retirement income (ie a pension) through buying an annuity – the most common method of taking retirement income.

    An annuity is an income for life provided by an insurance company. The bigger the pension fund, the bigger the income will be. The income will also depend on factors such as life expectancy, and the interest rates prevailing at the time of retirement.

    Individuals that have certain health conditions or who have made lifestyle choices such as smoking, may be able to obtain enhanced rates from some annuity providers.

    You should understand that retirement decisions are complex, involving consideration of both the type of annuity and the choice of provider offering the best level of income and alternative retirement options.

    Seeking financial advice
    You can help members – your employees – by providing them with access to financial advice, or help with the cost of seeking advice, that may help them with choosing a course of action that provides a good return from the proceeds of their pension fund.

    There is no legal requirement to give access to financial advice. However, where members do get advice from an authorised adviser, they will be given an explanation of the options that apply to them. Also, if things go wrong, the member will have some protection under FSA rules.

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    Employers – Closing a Scheme

  • What must I do to close the scheme?

    If you’re considering making changes to the pension scheme, there are some factors that you must discuss with the trustees and consult on with the scheme members.

    What you need to do
    You’ll need to:

    • take into account – in consultation with trustees – the requirements about altering pension rights already earned by members
    • consult scheme members if you’re considering changes that might affect their future pension rights.

    If a pension scheme providing any defined benefits starts to wind up while an employer is still solvent, the value of members’ benefits must be calculated using the cost of buying annuities to secure those benefits.

    If the scheme’s funds are insufficient to secure benefits on this basis, the shortfall is treated as a debt due from the employer to the trustees.

    As an employer, you must ensure that you are aware of the measures introduced in the Pensions Act 2004 that prevent employers from taking action to avoid their liabilities in these circumstances. You my need to talk to your adviser for guidance on the clearance process.

    Do I need to tell the regulator?

    You must tell us your scheme is winding up.

    You can share information with them about all aspects and stages of your work-based pension scheme – right through to telling them your scheme has wound up.