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Andrew
in Brighton asks: I have heard that Personal
accounts may be delayed due to the state of the
Economy. Do you think this is likely? Thank you
Answer: The introduction of the new employer
responsibilities has already slipped slightly - from
April to October 2012. In any large scale policy
change, such as these pension reforms, some slippage
is always possible. However, the Government has
committed to the changes being introduced during
2012, and they have clearly stated that they see no
reason for any further delay.
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Janet
Bower in Salisbury asks: We operate a GFRP from
Standard Life, open to all employees. The Ee / Er
splits are currently A 3/3, B 3/6 and C 3/12. The
band refect position and length of service. We are
proposing to increase the lower band to 4/4 to match
the increase expected from the A band of staff. All
new members of staff will join the company scheme on
auto join at 3er/ 4ee for the first year - what
steps do we have to to take to record those who opt
out of the auto join and what are the steps to gain
exemption for the scheme. We are assuming that the
other levels are fine as the total contribution is
in excess of 8% The contributions are made on basic
salary - we do not intend to alter this. Thank you
Answer: To be 'qualifying' (meet the legal
requirements), the scheme needs to have a
contribution of at least 8% of qualifying earnings
(all earnings between £5,035 and £33,540 including
overtime, commission, bonus and statutory payments),
with the employer paying at least 3%. The employer
also needs to operate automatic enrolment and there
needs to be a default investment fund.
There is a mismatch between the method of
calculating the legal minimum contributions (which
use qualifying earnings) and your scheme, which
bases contributions on basic earnings. Once the
staged and phased introduction is complete, probably
around 2016, you need to ensure that at least 8% of
qualifying earnings is paid in for every employee in
each year. Your category C should be fine as it is
has a very generous employer contribution. For the
other categories where contributions total 8% or 9%
of basic salary, you will probably need to perform a
check each year for each employee - comparing the
actual monetary payment with the legally required
contribution. If the actual contribution falls below
the legal minima then a further payment will
normally be needed. We are continuing discussions
with the Government to find ways to minimise the
additional work which employers may face, when
ensuring their scheme meets these new requirements.
There will be an automatic enrolment process which
employers have to follow which sets out various
timescales - for information to be given to
employees, for them to be auto-enrolled, and a 30
day period within which the individual can opt-out
and be treated as if they were never a member.
Employers will want to retain any opt-out forms so
they can demonstrate to the Pensions Regulator that
they are fulfilling their compliance duties, and to
help with any future enquiries from the employee or
any employee representative body.
Standard Life will be investigating automated
processes to help you with your compliance - for
example, we may be able to have an online opt-out
form on our scheme website which is simultaneously
emailed to you and us if an employee completes it.
This will speed up any refund of contributions and
provide an audit trail in case of future enquiries.
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Frank
Jurga in Swindon asks: Hi Andrew, am I right in
thinking that the introduction of the Pension
Account will be a true additional cost to the
employer and that employer and employee NI will not
change? Will people still be eligible to contract
out of the S2P in addition to joining the PA system?
I can\'t locate any info on retirement benefits -
will the funds be unit linked and individual?
Answer: You are correct, NI will not
normally change as a result of the pension
contributions, unless an employer uses salary
sacrifice. The personal accounts scheme is an
occupational defined contribution scheme. so each
individual will have their own earmarked benefit, or
pot of money, which the Trustees will look after, on
their behalf. Members will be able to choose from a
small range of investment funds and, if they don't
make a choice, funds will be invested in a default
fund. At retirement people will be able to choose an
annuity, probably from a small range of providers.
Some people with small value benefits may be able to
take their benefits wholly as a lump sum.
If employers want to offer their employees more
investment or retirement options, they can use a
private sector scheme rather than the personal
accounts scheme.
Contracting-out of the state second pension is being
scrapped, probably from 2012.
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My
question is: I am an employer with over 120
staff, How will the administration of the Personal
accounts be carried out and will I still have a
reasonable choice of funds from different providers.
Answer: The administration of personal
accounts will be outsourced to one private sector
company. The tender process is currently underway,
and the administration contract will be awarded
around July 2010. In a similar way, the investment
management of the funds within personal accounts
will be outsourced to one or more private sector
fund managers. It is anticipated there will be a
small investment choice within personal accounts,
probably between 5 and 8 fund choices. The
management of these funds is likely to be split
between several fund managers.
If you want a wider choice of investment options, or
access to specific fund managers, then you can
choose to use a private sector pension scheme rather
than the personal accounts scheme.
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My
Question is: 1) I have heard that Employed
Directors, those who are paid dividends only, will
be exempt from Personal Accounts, is this correct?
2) If an Employee has his/her own personal
pension and the Employer contributes 3% plus to
their personal pension, which can be subsequently
proved via statements etc., would they also be
exempt from organising Personal Accounts in 2012?
Thanks for your help.
Answer: There are a few issues around
directors. The requirements don't apply to sole
worker-directors (a company where there is only one
employee who is a director), or to non-executive
directors who don't have a contract of employment.
On a wider note, dividends are not included within
the definition of qualifying earnings. So if an
individual receives dividends but qualifying
earnings (basic pay, bonus etc) are below £5,035,
then they will not be a qualifying employee and so
the company doesn't need to enrol this individual.
Employers can fulfill their responsibilities by
using the personal accounts scheme or good quality
private sector scheme(s) (broadly a scheme which has
at least an 8% contribution, with at least 3% from
the employer). If an employer is happy with the
extra administration involved, then they could meet
their requirements by paying to various good quality
individual personal pensions. However, I imagine
most employers will want to automatically enrol all
staff into one scheme, to minimise their work.
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My
question is: The qualifying earnings are
currently between £5035 and £33540. Does this mean
that an employee who earns £15000 will only pay
contributions on £9965 or will contributions be
payable on all earnings?
Answer: The legally required minimum
contributions are based on qualifying earnings. So,
yes, within your example, contributions would only
be based on £9,965. However, an employer can set
up, or continue, their scheme in any format they
wish. For example, an employer could choose to base
contributions on basic earnings only, or on all
total earnings. As long as the contribution for each
member reaches the legal minima in each year, then
that is fine. Please bear in mind the £5,035 and £33,540
figures are in 2006/07 earnings terms, so they will
have increased by the time we get to 2012.
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My
question is: If an employees earnings fluctuates
each pay period will the contributions fluctuate
according to that periods earnings or can the
employee fix the contribution rate?
Answer: The legally required minimum
contributions are based on qualifying earnings, so
will vary in each pay period. This will be the
normal method used by the personal accounts scheme.
Some private sector pension providers may be willing
to set up a scheme on a fixed contribution basis.
However a check would be needed at the end of each
year to ensure the contribution for every member
meets or exceeds the legal minima (or top up
payments would be required).
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