Agenda Item No
The Vale of Glamorgan Council
Cabinet Meeting: 21 January, 2013
Report of the Leader
Statutory Pension Scheme Changes - Auto Enrolment
Purpose of the Report
1. The purpose of this report is to advise Cabinet of the implications for the Council of the implementation of auto-enrolment under the Pensions Act 2008 and to seek approval to utilise the provisions of transitional arrangements which are available to employers.
1. The implications and requirements of the Pension Auto Enrolment Regulations are noted.
2. The Council utilise the transitional arrangements available under the Pension Act Regulations to defer auto enrolment until the end of September 2017 for those employees who have already opted out of the scheme.
3. That all employees are written to advising of their entitlement to join the pension scheme.
Reasons for the Recommendations
1. To inform members of the implications and requirements of the Pension Auto Enrolment Regulations.
2. To ensure the Council complies with Pension Auto Enrolment Regulations.
3. To allow employees who have already opted out at the 1st May 2013 the ability to take their own decision about whether they wish to join the relevant pension scheme.
2. Under Teachers Pensions Scheme (TPS) and Local Government Pension Scheme (LGPS) regulations, employees with a contract to work a number of hours and who are engaged for more than 13 weeks, will automatically be enrolled into the relevant pension scheme.
3. The contract letter and associated documentation would have been provided to the employee on joining the Council advises them that this action was being taken and would have provided the individual with an opt out form to allow them to opt out from the LGPS (prior to starting work with the Council) should they so wish. Opt out forms were not provided to the individual if they were a member of the TPS but would have been available from the Teachers Pensions Website and could have been submitted to opt out of the scheme prior to starting work with the Council/ School.
4. From October 2012 the law on workplace pensions changed and employers are required to automatically enrol their eligible jobholders into a workplace pension. This is a separate regulation to the conditions of the TPS and LGPS described above as not all workplace pension schemes will have such enrolment practices.
5. Auto-enrolment will mean eligible jobholders being automatically enrolled into their employer’s qualifying pension scheme without any active decision on their part. The LGPS and the TPS are qualifying pension schemes under the relevant Regulation.
6. Under the new regulations, the Council are not able to provide a copy of the Opt Out form for the LGPS in the contract documentation pack. In addition, whereas any forms for either LGPS or TPS received prior to the person starting work would have been acceptable, they are no longer acceptable if they are dated and received prior to the individuals start date. Should this be the case the form cannot be processed and a new form has to be issued to the individual for completion.
7. Auto enrolment does not mean that employees will have to remain in the scheme as they have the discretion to opt out once the initial enrolment has taken place. However, their pay will have already been subject to deductions for pension and will need adjustment and repayment in the following pay period(s) due to no longer being able to opt out prior to starting work as identified in paragraph 10 above.
Relevant Issues and Options
8. Under the new Regulations an employer has a number of duties, the principal ones being:-
Automatic enrolment - Enrolling a worker into a pension scheme without the need for any action by the worker.
Opting in, joining and contractual enrolment - Arranging membership of a pension scheme for workers who choose to opt in or join a pension scheme.
Managing opt outs - Administering the opt-out process for workers who decide they do not want to be a member of a pension scheme.
Providing information - Giving specified information to groups of workers within specified categories.
9. In terms of the above, all employees will be entitled to join the scheme however only an eligible jobholder will need to be enrolled. An eligible jobholder is defined as an employee who:
· earns more than the minimum earnings threshold (£9,440p.a with effect from 6th April 2013);
· is aged between 22 and state pension age; and
· works in the United Kingdom.
10. The earnings taken into account in determining if the threshold of £9,440p.a. has been triggered include salary, overtime, any bonuses, sick, maternity, paternity or adoption pay during the period.
11. The remaining employees who are classed as non eligible jobholders will not be automatically enrolled under these regulations but remain to have the option to join the scheme if they wish.
12. Councillors are not classed as employees under the Regulations and therefore the automatic enrolment provisions do not apply to them.
13. The date, known as the staging date, on which an employer must auto enrol eligible jobholders into a qualifying pension scheme depends on the size of the employer's workforce. The new duties came into effect on 1 October 2012 with this Council’s staging date to implement auto enrolment being set at 1st May 2013.
14. Eligible jobholders can opt out of auto-enrolment, but they will only be able to opt out after they have automatically become a member. If they want to opt out, they will be required to complete an opt-out form which is only available from the Pension Scheme Provider. The Council cannot provide this form to the individual.
15. Currently there are around 1800 (28%) employees who are not members of the LGPS or TPS, around 528 (9%) are eligible job holders who would be subject to auto-enrolment.
16. Employees at the 1st May 2013 who have already opted out of the relevant Pension Scheme, under current rules, would still be automatically re-enrolled at that date. This will result in, around 528 individuals who would be eligible jobholders, having pension deductions taken from their pay in this pay period of between 5.5% and 7.5% depending on their salary. Having previously opted out this could cause frustration for these individuals and will clearly reduce their net pay for that period. There will be significant work for the administrators in refunding these contributions and administering opt out arrangements.
17. Although the Council’s staging date is 1 May 2013 the Regulations set out arrangements under which this date can be deferred. These are defined as Postponement and Transitional Arrangements and their provisions are as follows:-
18. Under these provisions an employer can postpone the staging date by up to 3 months. It is considered that there is no great advantage to the Council from applying the Postponement .
19. These provisions allow an employer to choose to delay automatic enrolment. Their use is available only to employers who provide a Defined Benefit or hybrid pension scheme and can only be used in respect of eligible jobholders who meet certain conditions. The LGPS and the TPS are Defined Benefit pension schemes. The employer exercises the Transitional Arrangements by giving notice to the eligible jobholder who meets the conditions.
20. The Transitional Arrangements allow deferment of the staging date until 30 September 2017 for eligible jobholders. The impact of utilising the Transitional Arrangements are as follows:-
· There would be no prejudice to any employee who was entitled to join, and wished to join, the LGPS or the TPS as the Council would continue to enrol them into the relevant pension scheme under the Pension Scheme regulations. All employees will be written to in May to remind them of their rights to join a pension scheme as outlined in paragraph 27 below.
· There would be a greater lead-in time to undertake the significant administrative burden involved with auto-enrolment although even with the use of the Transitional Arrangements there is still an additional administrative workload.
· Some of the potential costs arising from auto-enrolment would be phased in over the period 2017.
21. However, notwithstanding the use of the transitional arrangements for eligible job holders at the staging date of the 1st May 2013, the Council will be required to auto enrol any employees who become eligible jobholders by meeting the auto enrolment criteria after this date. This will be an on-going requirement until the end of transitional arrangements on 30 September 2017. After that date the auto enrolment requirements will be applied as set out in the Regulations.
22. Due to changes over the years where individuals change their jobs or leave the Council this will reduce the number of employees who will need to be automatically enrolled from 1st October 2017. Each time an employee becomes an eligible jobholder after the 1st May 2013 (through an increase in hours, or a change in role) the transitional arrangement for that employee ends and they would need to be auto enrolled under the regulations.
23. Under the Transitional Arrangements the Council is required to advise all eligible jobholders, within one month of the original staging date of 1st May 2013, of the following:-
· The Council’s decision to utilise the Transitional Arrangements
· Their rights in respect of the deferment of auto-enrolment
· Their entitlement to join a pension scheme
· That if they join the LGPS or the TPS then the Council will make employers’ contributions to the relevant pension scheme
24. This will ensure any current employees who wish to join the pension scheme remain to have the ability to do so and, have the time in which to come to their own decision about the benefits without their pay being affected due to automatic enrolment.
25. In addition to this all employees who are currently not in an occupational pension scheme will be written to during February and March to highlight these forthcoming changes and provide them with the sources of further information on pension schemes should they wish to consider membership further.
Resource Implications (Financial and Employment)
26. There would be no additional costs arising from implementing the Auto-enrolment Transitional Arrangements with the necessary administration being undertaken using existing resources.
27. If the Transitional Arrangements are not implemented the cost would be dependent on how many individuals chose not to opt out. It is not possible to determine the numbers who may opt out but should all eligible jobholders who were auto enrolled remain in the relevant pension scheme, the employers contribution would be in the region of £1.75m. If all employees currently not in an occupational pension scheme (excluding casual staff) opted in, the employers contribution would be increased by £2.6m
28. It is difficult to quantify how many individuals may choose to opt into the pension scheme as a result of the changes in regulations - this is a personal decision by the individual and therefore not something that can be predicted. It is likely that pension employers contributions will rise over the years and increase as people change roles or are recruited to new roles in the Council.
Sustainability and Climate Change Implications
Legal Implications (to Include Human Rights Implications)
30. The Council is required to put in place the necessary administrative arrangements to conform with the Pension Regulation changes.
Crime and Disorder Implications
Equal Opportunities Implications (to include Welsh Language issues)
33. The utilisation of the transitional arrangements available through the regulation supports the Corporate Priority of managing the Council’s money efficiently and effectively in order to maximise its ability to achieve service aims and the service objective of providing sound financial management
Policy Framework and Budget
34. This is a matter for Executive decision
Consultation (including Ward Member Consultation)
Relevant Scrutiny Committee
36. Corporate Resources
Gill Howells, Operational Manager Finance and Systems
Head of Financial Services
Director of Resources