Video

Vivien Cockerill: Hello, I'm Vivien Cockerill, head of pensions strategy. I'm going to be talking to Richard Lee, pensions partner, about the workplace pension reforms and in particular how those changes are going to be implemented. So Richard, we've looked at the reforms briefly and now we are talking about implementation. We talked about automatic enrolment of workers into a qualifying scheme, but what exactly is a qualifying scheme?

Richard Lee: Thanks Viv, a key provision of these reforms: qualifying schemes. It's pretty straightforward for the first two tests. It's an occupational or personal pension scheme, registered for tax purposes; so I think everybody would be familiar with those two pieces. You then move into the more difficult minimum requirements test. If you're using defined contribution or money purchase, the overall minimum requirements are for a 3% employer contribution and an 8% total contribution in steady state. Now that has been delayed and we wait to see what the government will say. Next, if you are using defined benefit schemes, there is a specific test for those. It's the contracted out test, or the test scheme standard specifically in this legislation. And finally for career average schemes, again there is a specific test in the legislation and a certain level of re-evaluation. So those are the provisions that apply for qualifying schemes.

Vivien Cockerill: So Richard, what is the difference between a qualifying scheme and an automatic enrolment scheme?

Richard Lee: OK, an auto enrolment scheme will always be a qualifying scheme, it has to be a qualifying scheme. But in addition, it has to allow automatic entry, it has to allow re-enrolment and it also has to allow members to opt-in at appropriate times. In addition it can have no barriers to entry, so in investment terms it will have to offer a default fund and it cannot require members to supply information before they join. So no barriers to entry.

Vivien Cockerill: And Richard in practice what does an employer need to do to bring people into an automatic enrolment scheme?

Richard Lee: Well, assuming that the employer has established its automatic enrolment scheme, when there is a new starter and once they have been assessed in terms of their eligibility, they will need to be given prescribed information - and we will come onto the detail - within certain timescales to allow them to understand the opt-out process, the auto enrolment process and what it would mean for them in joining the automatic enrolment scheme. After that process happens, the individual is then either enrolled into the scheme, and the employer will have noted that and registered that, or the individual will have opted out and again that record needs to be kept in terms of that individual's decision because there are re-enrolment processes that will affect the individuals who opt-out. So that in summary is the basic process.

Vivien Cockerill: Richard, how would an employer go about enrolling staff into a qualifying scheme?

Richard Lee: Yes, good question, so this will depend on whether the existing scheme meets the minimum criteria or not. If, assuming that it does not, you would need to make changes to that scheme to introduce the minimum criteria and the lack of barriers that we have discussed. If it's an occupational trust-based scheme, you will need to engage with the trustees to make sure that the amendments can be made if they need to be involved. In addition there may be consultation requirements with the workforce if you are making changes to the contribution levels in particular. If, on the other hand, you are using personal pension schemes through providers, you need to be discussing with those providers that their products are now compliant for auto-enrolment purposes and I expect that to be happening now.

Vivien Cockerill: So Richard, what information does the employer need to give the eligible jobholders and also those non eligible jobholders?

Richard Lee: Ok, well just as a quick reminder, eligible jobholders are those who earn over £7,475 and are between 22 and state pension age and can be auto enrolled into a qualifying arrangement and receive an employer contribution. They have to be given information about the pension scheme they are going to automatically enrolled into, whether they will or already have been auto enrolled, their rights to opt-out of that arrangement and general pensions and savings information to allow them to make an informed decision. So that's eligible jobholders. Non eligible jobholders are in that category between £5,035 and £7,475 who are not going to be auto-enrolled but they have a right to opt in to the scheme and receive an employer contribution. These individual have the right to receive information about their right to opt in and if they do opt in, they then should receive all of the information that an eligible jobholder receives.

Vivien Cockerill: Richard, can you tell me what are the timescales that employers are working to? How quickly do they need to deal with these new requirements?

Richard Lee: Well if we first talk about the initial staging date, so the information that we just talked about has to be supplied within one month of the initial staging date or within one month of the individual's automatic enrolment date. So it's quite quick; employers will need to be very organised about this. In addition, if employers choose to use the waiting period - which is the three month waiting period - they can delay their staging dates, although it is important to realise that employees can still opt in during that period. If they use the three month postponement period or waiting period, one month after that expires they have to supply this information. So essentially it's the one month rule that we are sticking to for the general supply of information. If, on the other hand, employers are simply telling individuals who are already in a qualifying arrangement, that they are in that arrangement and nothing else needs to happen, they have two months within which to do that after the initial staging date period. Just as another key and practical point, the information has to be supplied in writing. It's acceptable for it to be supplied by email and on intranet sites but it has to be individually targeted. So a general message on an intranet or on a workplace notice board is not sufficient for this purpose; they have to be individually targeted in writing.

Vivien Cockerill: And Richard finally, what about those employers who currently just have no pension arrangements? What do they have to do?

Richard Lee: OK, well key point for them is to go and find a provider who can give them an automatic enrolment scheme. The big one that everybody I'm sure knows about is NEST - the National Employment Savings Trust - but of course there are, every day, new suppliers coming onto the market, ATP the Danish providers, B&CE, the building/construction industry scheme which is also a new automatic enrolment scheme. So finding a scheme is the first step. If you fail to do that, you are breaching your duties and the Regulator has powers to fine you up to £10,000 a day in a worse case scenario for the larger employers. And in the worse case there are criminal sanctions as part of this legislation.

Vivien Cockerill: So those employers have no excuse?

Richard Lee: Absolutely no excuse at all.