10th March 2016

The Pensions Regulator - Industry liaison update March 2016

• Key AE employer messages March 2016

        1.    Allow time to choose a pension scheme

• We recommend that employers allow time to look at different schemes before deciding which is suitable for them and their staff.
• We believe that large well run master trusts, which have obtained Master Trusts Assurance (MTA), and group personal pension plans (GPPs) authorised by the FCA are a good choice for employers seeking to comply with their automatic enrolment duties.
• We have published a list of master trusts which have obtained MTA and are open to all employers on our website. You can find a list of GPPs via the link to the ABI on our website.

        2.    Let us help you get information that is relevant to you

• Employers should use our ‘duties checker’ at www.tpr.gov.uk/en/employers/duties-checker.aspx to give us their latest contact information. It only takes a minute to “nominate an employer contact” - that is, that is the owner or most senior person in the business who is responsible for making sure the legal duties are met.
• Employers can also nominate an adviser as a secondary point of contact.
• When we have those details, we can send additional emails with help and guidance to ensure the employer and adviser know what to do and when.

        3.    Using an adviser? Agree who is doing what

• Don’t risk a fine. The Pensions Regulator has seen employers risk becoming non-compliant by failing to complete their declaration of compliance, because they wrongly assumed their business adviser was doing this for them.
• Advisers should be clear about what services they offer - and employers and their advisers should be clear about who is completing each automatic enrolment task.
• It’s important to understand what to do and by when and this will depend on the circumstances of your clients and their staff.  The best way to do this is to have an agreement in place, setting out clearly who will do what.

• Salary Sacrifice for pension contributions

As we have explained in previous updates, there are two tax relief mechanisms for members pension contributions - Relief at Source (RAS¹) and Net Pay Arrangement (NPA²).  For each pension scheme, only one tax relief mechanism can be used, so all scheme members will have either RAS or NPA applied. However, a pension scheme provider may be able to offer an employer the choice.

Under NPA, staff who earn under their annual HMRC income tax allowance will not get any tax relief – so we have suggested that a pension scheme operating NPA will not be suitable for these lower paid staff.

We would like to point out that if Salary Sacrifice³ is used for an individual’s pension contributions, it effectively overrides RAS or NPA – and the member’s contributions will not be subject to income tax (or National Insurance). However, this means that the pension provider will not claim 20% tax relief from HMRC – so it would also be better not to use Salary Sacrifice for lower paid staff who do not pay income tax. There are also implications relating to other benefits payable to low earners.

(For footnotes see below)

• Basic Assessment Tool

The Basic Assessment Tool is now accessible from our website under the adviser tab at the following link www.tpr.gov.uk/working-with-clients-without-compatible-payroll-software.aspx so please direct any of your advisers or third party contacts to this location, rather than the webpage in the duties checker.

• Commission ban

From 6 April 2016, administration service providers are banned from taking the commission costs they pay to advisers (for advice and services given to members or sponsoring employers) from the scheme members

The ban only applies to commission arrangements that are entered into, varied or renewed after 6 April 2016. The regulations only apply to some types of advice and services.  Payroll and middleware services are not covered by the ban.

Trustees of schemes subject to the ban are required to notify their service provider(s) that the scheme is within scope of the regulations.

The service provider then has one month to confirm to trustees in writing that they comply with the new regulations.  These time limits may be extended if the service provider needs more information about the scheme’s membership.

Click here for more information about the commission ban: www.tpr.gov.uk/trustees/dc-charge-controls.aspx

The Department for Work and Pensions has also produced some guidance:  https://www.gov.uk/government/consultations/banning-member-borne-commission-in-occupational-pension-schemes-government-response-and-consultation-on-draft-regulations

·        Automatic enrolment helps six million into workplace pensions

More than six million workers have now begun saving into a workplace pension as a result of automatic enrolment.

This month’s automatic enrolment declaration of compliance report also shows that more than 100,000 employers have now automatically enrolled staff into a workplace pension. Along with the country’s largest employers, thousands of small employers and micro employers from scaffolding firms to children’s nurseries, hauliers to farmers, charities to car dealerships and people who employ a personal care assistant are now starting to pay into workplace pensions for their staff.

·        Costs and charges for small and micro employers

Our research shows, that in the run up to their staging date, a large concern for small and micro employers remains how much AE is going to cost them. This could be a potential barrier to starting their duties. Therefore TPR conducted some research and analysis to ascertain employers’ experiences and how much they have paid, in order to provide guidance to small/micro employers.

We will be publishing these findings on our website to assist employers, so they can understand what is involved in AE in order to make sure they do not incur any unnecessary costs. TPR will give employers an idea of what their set-up costs could be and, if they do decide to use a business adviser, what they might expect to pay

Footnotes:

¹ RAS is where payroll reduces the amount to take for the member’s contribution by 20% and takes the money after tax and employee National Insurance have been deducted - so 80p is deducted from pay for every £1 of member contribution - and the pension provider claims 20% tax relief on the member’s contribution from HMRC and adds it to their pot (even if no income tax has actually been paid by the member).

² However, with NPA the payroll takes the full member contribution before income tax is deducted (NI is paid on the contributions) – so £1 is deducted from gross pay for every £1 of member contribution.  If the member does not pay income tax (e.g. because they earn less than their personal tax allowance of £10,600 in 2015/16), then they will not get any tax relief – and so we have suggested that a pension scheme operating NPA will not be suitable for these lower paid staff.

³ Salary Sacrifice is applied (or not applied) on an individual basis and it is not possible to use it if it would take the worker’s earnings below the National Minimum Wage. If Salary Sacrifice is used for pension contributions it will have the following effect:

                      i.        the member’s salary is contractually reduced by £1 for every £1 of member’s gross pension contribution;

                     ii.        no income tax and no employee or employerNational Insurance is due on the sacrificed part of the member’s salary, so higher rate tax payers get full tax relief;

                    iii.        the employer adds the value of the member’s contribution to the employer’s contribution and pays it gross into the member’s pot;

                    iv.        neither RAS nor NPA are relevant, as technically there are now no member contributions - all the contributions are considered to be the employer’s contribution;

                     v.        if the member does not pay income tax they will not get any tax benefit.

Auto-Enrolment, Pensions