Automatic enrolment Our approach. Terms for group risk benefits linked to pension scheme membership for employers of 250 or more staff

Transcription

1 Automatic enrolment Our approach Terms for group risk benefits linked to pension scheme membership for employers of 250 or more staff

2 2 Automatic enrolment Our approach What is automatic enrolment? The Pensions Act 2008 laid the foundation for workplace pension reform to encourage people to save more in their private pensions. Subsequent reviews of the initial legislation were introduced via regulations and in the Pensions Act At the heart of this legislation is the requirement that all UK-based employers must automatically enrol their eligible jobholders into a qualifying workplace pension scheme. A qualifying workplace scheme can be a defined contribution scheme, with a minimum contribution, or a defined benefit or hybrid scheme which meets certain conditions. Employers must contribute to the cost of the scheme. The government also introduced a new low-cost pension scheme, the National Employment Savings Trust (NEST). This is a defined contribution, trust based scheme with its own set of trustees. Employers can use their existing scheme, set up a new scheme and/or use NEST to meet their obligations. When an employer has to start this exercise depends on the number of PAYE employees, and this is known as the staging date. What does it mean? Compulsory entry into a qualifying workplace pension scheme Eligible jobholders must be automatically enrolled at the employer s staging date, and every three years thereafter, but may opt out after automatic enrolment Certain groups of workers are excluded but may join voluntarily Defined benefit or hybrid schemes must meet minimum quality standards, which broadly means they will provide equivalent or better benefits than a contracted-out scheme Defined contribution schemes must have a minimum level of contributions, based on the employee s band earnings Band earnings in the 2012/13 tax year are between 5,564 and 42,475 Staging dates Staging dates by number of PAYE employees of employers with 250 or more employees. 120,000 or more 1 October , ,999 1 November ,000 49,999 1 January ,000 29,999 1 February ,000 19,999 1 March ,000 9,999 1 April ,100 5,999 1 May ,000 4,099 1 June ,000 3,999 1 July ,000 2,999 1 August ,250 1,999 1 September ,249 1 October November January February 2014 Source: employers/staging-date-timeline Minimum contributions for defined contribution schemes Date Total Minimum Contribution Minimum Employer Contribution October % 1% October % 2% October % 3% When the final minimum contribution level is reached (8%), a 1% contribution is made by the Government through tax relief. Resource This is a useful website to help understand what your client needs to do with regard to automatic enrolment: professionals/8-tasks-accountants.aspx

3 Automatic enrolment Our approach 3 What is automatic enrolment? Joining and leaving An eligible jobholder is a worker not already in a qualifying pension scheme, aged between 22 and State Pension Age, with earnings over the trigger salary (currently 8,105pa) and working (or ordinarily working) in the UK. Workers who do not qualify for automatic enrolment will still have the right to join their employer's scheme if they ask, provided they are under age 74. The employer does not need to make contributions if their earnings are below the minimum band earnings, currently 5,564 a year. Employers of 120,000 or more PAYE employees will start the process on 1 October 2012, with employers of gradually decreasing size following suit over the following five years until the last dates in Anyone who has been automatically enrolled can opt out of the pension scheme at any point in the future. If they do so within the one month opt-out period defined in the legislation, then they will be treated as if they were never a member of the scheme and their contributions will be returned. If they stop contributing to the pension scheme (which we will call leaving ) after this period, their contributions will remain in their pension fund. An employee who has opted out or left can rejoin at a later date, and employers will need to perform a complete re-enrolment exercise every three years, on the anniversary of their staging date. 3 year re-enrolment Employers will need to perform a complete re-enrolment exercise every three years, on the anniversary of their staging date. Important note Employees who have applied for fixed or enhanced protection lose their protection if they join a pension scheme and accrue further pension benefits. There are no exceptions to automatic enrolment, so these employees will be automatically enrolled into an employer s pension scheme. To avoid losing their protection these employees must opt out of the scheme within the one month opt-out period defined in the legislation, to ensure they are treated as never having joined the scheme. If they opt out later than this, their protection will be lost. To find out more about opting out, the Pensions Regulator has some guidance which can be found here: gov.uk/docs/pensions-reformopting-out-v4.pdf

4 4 Automatic enrolment Our approach The impact of automatic enrolment on group risk benefits With the introduction of automatic enrolment from October 2012, employers who currently link risk benefits or the level of benefits offered to employees with pension scheme membership need to understand how these may be affected. Opportunity Automatic enrolment should be viewed as an opportunity to expand risk benefit provision to all employees, especially where existing pension take-up rates are high. We anticipate that, in the longer term, there will be a move away from pension-linked risk benefit provision to all-employee provision. This will simplify scheme administration and reduce associated costs. Issue Advisers have expressed concern about the potential for additional complexity in administration, data provision and pricing uncertainty within the rate guarantee period for those risk benefit policies that retain a pension link. The key issues that we have considered are: Requirements for data at the renewal date, staging date and after the opt-out period Split accounting periods resulting from the above Prior non-joiners (late entrants) Pricing uncertainty due to large membership fluctuations Anti-selection risk Automatic enrolment should be viewed as an opportunity to expand risk benefit provision to all employees Solution We have produced straightforward default terms for employers with 250 or more PAYE employees that, in most circumstances: Retain the concept of simplified administration Avoid any requirement for split accounting Provide cost certainty Require no additional member data Only charge for employees who remain in the pension scheme after a decision period Our terms for employers of fewer than 250 employees, whose staging dates are not until at least 1st March 2014, are being developed to ensure they reflect the needs of the smaller employer. Our default terms Terms Group Life Assurance Group Income Protection Group Critical Illness Application of actively at work Temporary cover during decision period for members not satisfying our actively at work criteria Maintain rate if pension membership increases by 25% or more Reconcile in following year if pension membership increases by less than 25% No requirement for data at staging date Data at end of decision period only where pension membership increases by more than 25% Amnesty for previously undeclared late entrants Important note Employers that change their current pension scheme, or set up a new pension scheme as a result of automatic enrolment, will need to take action to amend their group risk policy. This will ensure that all employees they wish to include will be covered for group risk benefits. Canada Life policies define pensionable employees and it is important to check this definition meets the needs of your client.

5 Automatic enrolment Our approach 5 The impact of automatic enrolment on group risk benefits Simple accounting Premium accounting There could be significant changes in the number of employees covered over the period following the staging date. Following the inclusion of all eligible employees into a pension scheme there is a possibility that a significant number will opt out, not only within the first month but also in the following months, as they get to grips with their circumstances. To understand how this will affect the group risk benefit provision, we will assess the increase in pension scheme membership three months after the staging date. We refer to these three months as the decision period. If the increase in pension membership at the end of the decision period is under 25%, we will reconcile the change within our standard simplified accounting process. We will not review the rate or produce any mid-year accounts. If the increase in pension membership at the end of the decision period is 25% or more, we will split the annual account in order to charge accurately. We will only need the membership data at the end of the decision period, but the effective date of the change will be the staging date. Employers will therefore only need to provide one set of data at most. Premium rate guarantees All group life assurance and group critical illness premium rates will remain guaranteed until the end of their current guarantee period irrespective of any increase in pension scheme membership as a result of automatic enrolment. Group income protection policies which see a pension membership increase of 25% or more will have their rates retested using the membership data as at the end of the decision period. Our flexible approach We are happy to work with clients where a tailored solution is required. We will, for example, consider the possibility of waiving any actively at work requirements if we are provided with long term absentee details. Some employers may wish to move to an all-employee provision immediately, and quotations can be requested for all employees in line with our usual quote request procedures. 3decision months period from automatic enrolment during which time those who opt out are not included in accounts and can receive temporary cover for group life assurance and group critical illness even if they do not meet actively at work criteria. Summary of accounting and pricing terms Membership before automatic enrolment Staging date New Opt out Continuing members Those who opt out are not charged for in accounts Membership after decision period 3 months temporary cover (GLA/GCI only) applies to automatically enrolled people during the decision period, ceasing on opting out GLA & GCI no re-price irrespective of pension scheme membership increases Re-price GIP only where pension membership increases 25% Account period 1 (split) Account period 2 (split) Account period (no split accounts) Split if 25% increase No split if <25% increase

6 6 Automatic enrolment Our approach The impact of automatic enrolment on group risk benefits Certainty of cover Entry requirements Employees who are automatically enrolled will need to meet our actively at work criteria to receive cover, up to a maximum of the free cover limit of any policy. For ease of administration, we will not need any forms to be completed but the terms will apply in the event of a claim. We will provide three months temporary cover for group life assurance or group critical illness members who are unable to meet these conditions, meaning that employers can be certain that cover is in place during the decision period. This removes concern over short absences due to minor ailments and the burden of additional information gathering when the focus will be on pensions. Previous late entrants Late entrants are employees who join the pension scheme after their first opportunity. There are standard requirements to grant late entrants cover under the group risk policy. Where the client has failed to identify a previous late entrant we will provide an amnesty to include them on the employer s staging date. All employees who have been previously overlooked will be included into the group risk policy under the automatic enrolment terms without the need for any other requirements to be met. There is no need to identify these missed late entrants; our terms will automatically apply. Future late entrants An employee who joins the pension scheme after the date first eligible and not as part of an automatic enrolment exercise, will be subject to our standard late entrant terms. Actively at work means that a person: 1 is 2 has 3 is 4 is present at their place of work (includes those absent from work on business or parental leave); and not received medical advice to refrain from work; and mentally and physically capable of performing fully the normal regular duties associated with the job they are engaged to do; and working their normal contracted number of hours, either at their normal place of business or at a place that the business requires. Group Life Temporary Cover Full cover except: if that person has previously had some or all of their benefit declined or postponed, if medical evidence or other requirements previously requested have not been provided, to any part of the person s aggregate lump sum benefit that exceeds 3,250,000; or if the person dies and their death is directly or indirectly linked to any medical condition that person has suffered from within the five years prior to the date temporary cover commences. Group Critical Illness Temporary Cover Full cover except: if that person has previously had some or all of their benefit declined or postponed, if medical evidence or other requirements previously requested have not been provided, to any part of the person s benefit that exceeds 250,000; or if the person suffers an insured illness and that illness has occurred as a result of a related condition.

7 Automatic enrolment Our approach 7 The impact of automatic enrolment on group risk benefits Other considerations Ineligible employees Companies may choose to enrol employees who do not meet the eligibility for automatic enrolment at their staging date. We will treat these individuals in exactly the same way as eligible employees. If ineligible employees are not enrolled on the staging date we will cover them as a standard entrant on the date they meet the eligibility for automatic enrolment. Adverse medical decisions Anyone who has previously been underwritten and declined as a late entrant and subsequently left, but is being reconsidered as a result of automatic enrolment, will not benefit from these terms. The previous medical declinature terms will remain in force. Catastrophe cover Canada Life provides generous levels of cover and we will consider granting an increase at locations should they be necessary, if requested. Useful contacts Canada Life Customer Services Phone: groupcsc@canadalife.co.uk Web: NEST National Employment Savings Trust Phone: Frequently asked questions Question What is Canada Life s decision period? Are premiums charged for those who opt out / leave within the decision period? Will a rate review be required due to increases? Will split accounting periods be needed? What are the data requirements? Is any Long Term Absentee (LTA) information required? What temporary cover is offered for members not satisfying actively at work criteria? Is an amnesty available for previously undeclared late entrants? Tailor solutions for individual clients? Answer The three months after the staging date. No. GLA and GCI: No mid-term rate reviews. GIP: Only where pension membership increases by 25% or more. Only where pension membership increases by 25% or more. One set of data as at the end of the decision period, if pension membership increases by 25% or more. No additional data will be needed if pension membership increases by less than 25%. No LTA information required as actively at work criteria is applied to new entrants or for any increase in benefit at the staging date. GLA and GCI: Up to three months cover. GIP: No cover available. Yes. Yes. Intermediary intermediary.enquiries@nestcorporation. org.uk Web: The Pensions Regulator Automatic enrolment enquiries Phone: customersupport@autoenrol.tpr.gov.uk Web: automatic-enrolment.aspx DWP Department for Work and Pensions Web: latest-news/

8 Canada Life Group Insurance About Us Canada Life Group Insurance is committed to building strong relationships with its customers by providing market-leading products and exemplary service and support. History The Canada Life Assurance Company has grown and prospered since the sale of its first policy in Canada in After commencing operations in the United Kingdom in 1903, it operates in the UK market through its wholly-owned subsidiary, Canada Life Limited. Great-West Lifeco Inc. completed its acquisition of Canada Life in July The Great-West Life Assurance Company, founded in Winnipeg in 1891, is Canada s foremost life and health insurer and a market leader in group insurance and individual segregated funds. The 2003 transaction brought together three leading Canadian life insurers Great-West Life, London Life, and Canada Life to create a strong financial services organisation with global reach. Canada Life in the UK Canada Life Limited has been providing group products for intermediaries and their corporate clients for over 35 years, and is now one of the UK s largest providers of group risk insurance, covering over two million people through its Group Insurance division. Canada Life Group Insurance is recognised as having substantial weight and experience in its three core product sectors Group Life Assurance, Group Income Protection and Group Critical Illness. It is the market leader for Group Life Assurance and a leading provider of Group Income Protection benefits. The value of benefits insured with the Group Division currently exceeds 239 billion. Expertise Group Risk business placed with Canada Life is in the safe hands of specialists who understand your requirements in every way. The dedicated Group Insurance division in Bristol handles every aspect of the management of a scheme, from quotations and customer service support to underwriting and claims. Canada Life also has an ongoing commitment to innovation through the development of administration technology which will further improve service to Group Risk customers. Our forms are available to download from our website: Canada Life Limited, registered in England no Registered Office: Canada Life Place, Potters Bar, Hertfordshire EN6 5BA CLFIS (UK) Limited, registered in England no is an associate company of Canada Life Limited. Registered Office: Canada Life Place, Potters Bar, Hertfordshire EN6 5BA Canada Life group consists of Canada Life Limited, Canada Life Asset Management Limited (both authorised and regulated by the Financial Services Authority), Canada Life International Limited and CLI Institutional Limited (Isle of Man registered companies authorised and regulated by the Isle of Man Insurance and Pensions Authority). All promotional material produced is approved by Canada Life Limited. GRP R Canada Life Limited 3 Rivergate, Temple Quay, Bristol BS1 6ER Telephone