Changing demographics, an ageing population, public funds under increasing pressure, retirement age rising – some of the issues that have led to perhaps one of the most significant changes to Guernsey pension legislation in many years – secondary pensions.
The introduction of secondary pensions is designed to encourage and enable working age people to save for a more comfortable retirement by supplementing the existing old age pension and being less reliant on the States pension and tax-funded welfare benefits. Employers will be required to enrol their employees in an approbated pension scheme.
John Martin (JM), director of BWCI gave us an overview of what’s ahead.
When is the deadline by which employers have to introduce a pension scheme if they don’t already have one?
JM
The actual deadline depends on the number of employees within an organisation. For a larger employer with 26 or more staff, the operative date is 1 July 2024. Then it’s a phased process – if you have between 11 and 25 employees, the date is 1 October 2024, between six and 10 its 1 January 2025, between two and five, 1 July 2025 and lastly for those with just one employee the deadline is 1 October 2025.
What about those who are self-employed?
JM
Self-employed individuals are currently ‘outside of scope’ of the legislation. But the States intends to review that issue at some point over the next few years. However, these changes may well act as a catalyst for self-employed people to start thinking about their own retirement savings.
How much will an employer/employee have to contribute?
JM
Statutory minimum levels of contributions will be introduced on a sliding scale. Initially these are 1% from the employer and 1% from the employee of gross remuneration, gradually increasing to 3.5% and 6.5% respectively by 2032. Employers can choose to contribute more than the statutory minimum and can opt to pay the employee’s contribution. This is something that many will select to do in a challenging recruitment market as part of their recruitment and retention strategy. Many employers are already paying a lot more than the statutory minimums to remain competitive, and we have definitely seen a rise in levels of employer contributions over the past couple of years.
Does an employer have to make the same level of contributions for all employees?
JM
No. Within the pension schemes which we operate we allow employers to have a flexible contribution rate scale. Employers can opt to have say a grade-related or service-related scale as a means of retaining ‘key’ staff.
If an employer has an existing plan in place, is there anything further to do?
JM
The directors of a company are obliged to ensure the existing scheme is wholly compliant with this new legislation. Generally, an existing scheme can be amended in such a way for it to become an approbated scheme. We’ve been working with several clients who have existing schemes to make sure that they are compliant ahead of the forthcoming deadlines.
Generally speaking, do you think employers are prepared for what’s ahead?
JM
We’ve already seen a significant upsurge in business and take up of our pension services. We have taken on a wide range of businesses in terms of both sector and size. Traditionally a pension scheme will have been typically offered by the larger finance sector employers. Now we are speaking with construction companies, electricians, plumbers who want to be prepared for this in good time rather than leave it until the last minute.
Most are signing up to an existing scheme such as our Blue Riband pension scheme which is a solution that includes all the administration, trusteeship, and investment services. The advantage is that it’s a tried and tested scheme that is more cost effective than bespoke schemes which are mainly used by large organisations with complex needs.
Is there any other aspect of the new legislation that sets it apart say from the UK secondary pensions?
JM
One key element is that the statutory minimum contributions are based on total renumeration and traditionally pension schemes were generally based on basic salary. So that’s an aspect of existing schemes that employers will need to review. Contribution calculations need to include things such as bonuses, overtime allowances and other benefits subject to upper earnings limit.
If an employee has a personal pension already, can they request the employer to pay its contribution into that scheme?
JM
There is a definite trend towards employers making membership of their own corporate pension scheme compulsory and part of their employment contract. This minimises their administrative burden, is more cost effective for the employer and reduces the risk on the directors of the company. Compulsory schemes won’t necessarily be appropriate for all employers for example where there is a transient workforce but for many employers it’s the sensible option.
However, if there is no compulsory scheme, then technically an employer can pay contributions into another scheme as long as it’s an approbated scheme. Typically, these are things such as individual retirement annuity trust schemes but only very limited types of these arrangements can be used for this purpose.
What would you say to a local employer who hasn’t done anything yet?
JM
It takes time to get everything in place. Due diligence and other administrative tasks need to be done in a very exact way to meet the requirements. So, to make the deadline I wouldn’t delay.
More information can be found https://pensions.bwcigroup.com/. Alternatively, John can be contact at john.martin@bwcigroup.com
