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
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
3. That all
employees are written to advising of their entitlement to join the
Reasons for the Recommendations
1. To inform
members of the implications and requirements of the Pension Auto
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.
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
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
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
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.
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
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.
Councillors are not classed as employees under the Regulations and
therefore the automatic enrolment provisions do not apply to
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.
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.
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.
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.
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:-
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 .
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.
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.
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
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.
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
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.
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)
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
Sustainability and Climate Change Implications
Legal Implications (to Include Human Rights Implications)
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
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
Gill Howells, Operational Manager Finance and
Head of Financial Services
Director of Resources