CSC is an IT outsourcing and consulting company with 7,000 employees in the UK. We have postponed the date we need to auto-enrol employees for three months until 1st July 2013.
In preparation for auto-enrolment we thought it would be helpful to share our top 10 questions;
1) Can you use your current pension scheme/provider?
2) How do you know if your current scheme is a qualifying pension scheme?
3) Do you have to make any changes to your current pension schemes?
4) Should you postpone your staging date?
5) Do your employees all work for the same company?
6) Will all your employees be included?
7) How will you assess which of your employees to auto-enrol?
8) What employer contributions are you going to pay?
9) Will your employees stay in the pension scheme or opt out?
10) What happens if you operate a salary sacrifice arrangement?
1) Can you use your current pension scheme/provider?
If you already have a suitable pension scheme why not consider using this as your auto-enrolment vehicle? CSC has a group personal pension plan for new employees with Scottish Widows. Scottish Widows were only chosen three years ago and we believe our charging structure is still competitive, we offer sufficient investment choices and a suitable default investment option. We therefore decided this pension scheme should be used for auto-enrolment. If it is some time since you reviewed your current pension provider you may want to compare the charging structure with that of NEST or other pension providers. Think about any active member discount on the charges (to check if these are still competitive for employees who leave your scheme and are automatically enrolled into a new one) and ensure you have a default investment option which is appropriate for the vast majority of your employees.
2) How do you know if your current scheme is a qualifying pension scheme?
If you already have employees who are members of an existing scheme(s) you need to check whether they, and any new scheme introduced, are qualifying schemes. This is an employer duty and not the responsibility of the trustees of a trust-based scheme. There are different tiers of certification to determine whether your scheme complies, based on minimum contribution rates. The Pensions Regulator website is a good reference point as it sets out the different tiers of certification and the process which needs to be followed. CSC has decided to apply for Tier 1 certification for our GPP and Tier 2 certification for our historical DC arrangement. Certification lasts for up to 18 months.
3) Do you have to make any changes to your current pension schemes?
When assessing whether CSC’s existing pension arrangements would remain qualifying schemes into the future, we realised we had some historical offsets from base salary which would need to be removed. These offsets were required in our final salary scheme for some employees transferring to CSC under TUPE arrangements, which we had not removed when we replaced the final salary scheme with alternative DC arrangements. By removing these offsets from base salary we will increase both company and employee pension contributions. The death in service and long term disability benefits are also impacted by this change. This in itself needs to be carefully implemented and communicated as part of our auto-enrolment project. So our advice is to check for any historical terms in your schemes which will need to be amended to ensure compliance with the qualification requirements.
4) Should you postpone your staging date?
Many employers appear to be postponing their auto-enrolment dates. The Pensions Regulator requires an employer to think through their reasons for postponing – although there is no requirement to have a “good” reason. At CSC we decided to postpone for three months until 1st July 2013 for three reasons; firstly, it aligns to our pay review date so if an employee starts to pay contributions for the first time it may be following a pay increase; secondly, we do not believe many employees are particularly eager to join the scheme if they have already made an election not to join as part of the annual flex renewal; and thirdly, this will delay the increase in company costs for a further three months. If you are postponing your own staging date you need to consider whether it is appropriate to issue General Notice A or B to your workforce, which you have to do within 1 month of your original staging date.
5) Do your employees all work for the same company?
It is important you know who your employees are employed by. In CSC the majority of our employees are employed by a UK company which has a staging date of 1st April 2013 and for these employees we are postponing until 1st July. However, we do have a number of employees with different contracts of employment (and a different payroll reference) who we are not required to auto-enrol until 1st May 2014. As we want to treat all our UK employees the same we had to inform the Pensions Regulator that we intend to bring forward the staging date for the smaller group of employees.
6) Will all your employees be included?
The headline group of employees required to be auto-enrolled are those not currently in a pension scheme, who are over age 22, under state pension age and earn over £9,440 a year. However, what about certain categories of employees; such as fixed-term employees, employees on long term sick leave, employees on sabbatical , or secondees into the UK. At CSC we have a number of employees from India who come to the UK for short-term project work (like many other IT firms) and we have established from the Pensions Regulator guidance that we do not need to auto-enrol these employees into the UK pension scheme.
7) How will you assess which of your employees to enrol?
You are likely to need your payroll provider, your pension provider, or another third party, such as a flexible benefits administrator, to help with the process of assessment. At CSC we did not consider using payroll as an option as we are in the process of transferring our payroll team to Prague and implementing a new SAP system. We therefore had to decide between using Scottish Widows (with the AssistMe tool) or Benefex, our flex administrator. Many of the pension providers are offering to complete the assessment process as part of their ongoing service and with no additional charge. However, as Benefex already process our monthly payroll data, have established interfaces with our SAP system and offer an online communication tool to our employees, we decided to use them for both the assessment process, and the communications around the opt out process on behalf of the provider. As it is the provider’s duty to ensure the appropriate opting out communications are issued, Benefex are requiring that Scottish Widows delegate this responsibility to them.
8) What contributions are you going to pay?
Will you maintain the standard rates of employer and employee contributions or introduce a new contribution structure for auto-enrolment? At CSC we pay up to 8% of the employee’s salary into the pension scheme provided the employee contributes at least 4% themselves. Other options are the employee paying 2%, in which case the Company will pay 4%; or pay 3%, in which case the Company will pay 6% (2 for 1 matching). We have decided that, although an employee can continue to elect this 2 for 1 matching structure as part of their flexible benefits package, we will auto-enrol employees at the minimum compliance level (1% from the Company and 1% from the employee, increasing to a total contribution of 6% in 2017 and 9% in 2018).
9) Will your employees stay in the pension scheme or opt out?
Don’t assume a low take up! For those large employers who have already implemented auto-enrolment very few employees have opted out. At CSC when we assessed our costs we assumed that at least 70% of those auto-enrolled would stay in the pension scheme – but that could be as high as 100% in practice.
10) What happens if you operate a salary sacrifice arrangement?
Unfortunately, an employer cannot make salary sacrifice a condition for enrolment into a pension scheme. Therefore although CSC operates salary sacrifice under our contracts of employment we will need to communicate and set up an alternative process for those employees who are auto-enrolled and decide they do not want to pay their contributions in this way.
