What do we know?
Secondary Pensions will be aimed at all employers within the Bailiwick, though it is not compulsory for employers in the Isle of Sark to join, with the emphasis to be on them to encourage their employees to save more for their retirement, ensuring that we move away from over reliance on the States old age pension and tax-funded welfare benefits later in life. As part of the new scheme, Employers will be required to offer enrolment into a qualifying pension arrangement or the new centrally run States pension scheme as an alternative.
When is my deadline?
It is proposed that the commencement date for auto-enrolment will be 1st October 2023 and it is being suggested that a phased entry system over 15 months will be implemented, dependent on the number of employees you have. The first phase will include all employers that have over 25 employees.
Whilst the States have recently agreed to a further delay in the implementation of the Secondary Pension until it is debated again in November 2022, we would recommend all employers consider the merits of setting up a suitable pension in advance.
But we already offer a pension to our Employees?
The overriding question to ask yourself is, “Is our existing arrangement a Qualifying Scheme?” Whilst not yet finalised we anticipate a “Qualifying Scheme” will have the following criteria;
Be approved by the Revenue Service under section 150 or 157A of the Income Tax (Guernsey) Law, 1975
Single member RATS may be eligible if their use is agreed by the employer and employee
Be regulated by the Guernsey Financial Services Commission
If you or your employer is already contributing to an occupational pension at or above the relevant contribution rates, it is possible that this arrangement can continue as a “Qualifying Scheme”.
The Employer must ensure that all contributions are paid directly from payroll to the Qualifying Scheme. Allowing employees to make contributions on behalf of the employer will not be permitted.
If you permit your employees to source their own pension arrangement you must ensure that all the schemes they use are “Qualifying Schemes” or you will have to provide an appropriate scheme for those employees that do not hold a “Qualifying Scheme” This flexible approach may present some difficulties when complying with the secondary pension framework.
The use and purpose of Loans in any Qualifying Schemes will need to have restrictions placed on them if they continue to receive employer contributions.
Which of our Employees are eligible to join?
Every employee earning above the lower level for Social Security contributions should be included. This means that all employees resident in Guernsey and Alderney who are aged between 16 and their State Pension Age. There will be no requirement for self-employed individuals to enrol.
What level of Contribution is required?
The current funding proposal is that employees should start contributing 1% of their earnings in the first year that the scheme is launched, increasing to 6.5% over a period of seven years. Provided the Employee joins the scheme at the launch date, Employers will then make contributions starting at 1% and increasing to 3.5% over the seven year period.
Anticipated Employer and Employee Contributions
Employees will be able to opt out of the scheme. The opt out period then lasts for 3 years at which time the employer then has to enrol the employee again even if they then decide to opt out for a further time.
What Choices do I have?
The good news is that you have choice when selecting the type and provider of your corporate pension. It will not be compulsory to join the States central scheme, employers can also opt to set up their own private qualifying scheme and make payments into this as an alternative.
Many employers are currently choosing this option. We have seen a positive response across various industry sectors and employers are embracing this idea. Setting up a company owned qualifying scheme provides you with greater control over the administration and operation of your scheme. Employers can choose their own investment management options and provide employees access to a range of other employee benefits. Greater flexibility whilst maintaining the ethos of the proposed Secondary Pension scheme.
Gower offer a range of qualifying pension schemes to suit employer and employee needs. We are able to package these schemes with a range of other benefits including private medical insurance, death in service, income protection and expert financial advice, to guide employees in their retirement planning and ensuring employers are heading in the right direction.
We offer a free consultation to agree with you, the best options, for your secondary pension requirements and will manage the implementation to ensure a smooth Onboarding process for you and your employees.