1. PAY REFERENCE PERIODS AND POSTPONEMENT FINANCIAL PLANNING DECEMBER 2015

2. CONTENTS SLIDE 3 PAY REFERENCE PERIODS FOR NEW JOINERS SLIDE 4 - 9 EXAMPLES: WITHOUT POSTPONEMENT SLIDE 11 - 16 EXAMPLES: WITH POSTPONEMENT SLIDE 18 - 24 EXAMPLES: EXISTING STAFF 2

3. Pay reference periods From 1 November 2013, there are two types of pay reference period: –the period by reference to which staff are paid –tax weeks / months The first is based on the period that staff are paid their wage e.g. a worker paid on the 22 nd of each month based on the work done from the 16 th of the previous month to the 15 th of the month of payment will have a pay reference period running from the 16 th of each month to the 15 th of the next. The second is based on the tax calendar, with the pay interval determining the length of the pay reference period. For example, a worker paid weekly will have a pay reference period of a tax week; a worker paid monthly will have a pay reference period of a tax month. If the pay of interval is a multiple of weeks or months, then the pay reference period is the same multiple of weeks or months e.g. a pay reference period of two tax weeks or two tax months. The employer can choose which of these pay reference periods is relevant, can operate both for different sectors of the workforce and can switch from one pay reference period to another. The examples in the rest of this presentation focus on a calendar month pay reference period.

4. Pay reference period – new joiner without postponement Mike, aged 25, joins Smithco. on 12 May. His salary is £10,956 p.a (£913 per month). Smithco’s pay reference period is calendar months. Smithco assesses Mike on 12 May and he is a non-eligible job holder because he only works for part of May. Smithco tells Mike he’s eligible to opt in to the pension scheme.

5. Pay Reference Periods – Mike without postponement 1 June 1 Jul Joins employer £0£600 12 May £913 1 st payroll date 20 May Non-eligible jobholder PRP Earnings Opt in rights 1 st assessment

6. Pay reference period – new joiner without postponement Smithco assesses Mike again on 1 June. He is now an eligible jobholder based on a full months earnings. Smithco has six weeks to auto-enrol Mike. On 20 June Smithco tells Mike that he’s been auto- enrolled from 1 June. 6

7. Pay Reference Periods – Mike without postponement 1 June 1 Jul Joins employer £0£600 12 May £913 1 st payroll date 20 May Non-eligible jobholder Eligible jobholder (at 2 nd assessment) PRP Earnings Opt in rights Max auto-enrol window (6 weeks) First payroll after enrolment 20 Jun enrolled (from 1 Jun) 1 st assessment

8. Pay reference period – new joiner without postponement Mike has one month from 20 June to opt out. First payroll deduction of contributions is on 20 June. If Mike opts out by 19 July he will be entitled to a refund of any contributions taken on 20 June. The employer has one month from receiving the opt out notice to settle the refund. (Can be longer if payroll arrangements already closed that month.) Contributions deducted in the first three months of scheme membership must be passed to the scheme by the 19th day (or 22nd day for electronic payments) of the fourth month. Therefore, contributions deducted on 20 June would have to be paid to the pension scheme by 19 September (or 22 September, if electronic) at the latest. As would any contributions deducted on 20 July and 20 August.

9. Pay Reference Periods – Mike without postponement 1 June 1 Jul1 Aug Joins employer £0£600 12 May £913 1 st payroll date 20 May Non-eligible jobholder Eligible jobholder PRP Earnings Opt in rights Auto-enrol window (six weeks) Payroll deduction of pension conts £913 20 Jun enrolled 19 Jul Opt out deadline 20 Jul 20 Jun 1st assessment 2nd assessment Pension scheme receives July contribution Opt out window

11. Postponement Postponement allows employers to delay assessment and enrolment of jobholders for up to three months Can serve a ‘business’ purpose (delaying a jobholder’s contractual pension rights) Can also serve an administrative purpose, easing the complexity within HR, payroll and scheme administration functions Postponement requires one of four notices issued within one month of delaying a jobholder’s assessment

12. Postponement – the four notices Postponement notices confirm deferral of assessment/enrolment to a chosen date within three months of the initial trigger. They also cover opt in and membership rights. General Notice A and General Notice B: A & B can be used on staging date and first day of employment and cover all types of worker. B excludes jobholders who are already active members of a qualifying scheme. Tailored notice to jobholder and tailored notice to entitled worker: Tailored notices cover specific situations. Jobholder notice used when someone first becomes an eligible jobholder and they are not already covered under a current Notice A or B. Entitled worker notice covers those not otherwise covered under A or B.

13. Pay reference period – new joiner with postponement Alternatively Smithco could decide that assessment for all new joiners will be postponed to the 1st of the month after completing a full month of service. Mike is given general notice B when he joins on 12 May. He knows he will be assessed on 1 July but has opt in rights in the meantime. Smithco actually knows that by 1 July Mike will be an eligible jobholder. They could choose to tell Mike now that he will be auto-enrolled on 1 July. Effectively this is a pre-assessment of the position on 1 July. It works for Mike but may not work for all cases such as those with fluctuating earnings.

14. Pay Reference Periods – Mike postponed until 1 July 1 Jun 1 Jul Joins employer £0£600 12 May £913 1 st payroll date 20 May Non-eligible jobholder Eligible jobholder PRP Earnings Postponement Opt in rights 1 st assessment due Six week window to issue General Notice B

15. Pay reference period – new joiner with postponement Postponement simplifies the process. Smithco only assesses Mike once. Simplified ‘payroll to scheme’ procedures – no need to adjust normal schedule of contributions Pension scheme receives contributions after opt out period ends And no issues if Mike decides he doesn’t like working at Smithco and leaves before he’s completed one months service.

16. Pay Reference Periods – Mike postponed until 1 July 1 Jun 1 Jul1 Aug Joins employer £0£600 12 May £913 1 st payroll date 20 May Non-eligible jobholder Eligible jobholder PRP Earnings Postponement Opt in rights First payroll after enrolment £913 Enrolled Six week window to issue General Notice B Max auto-enrol window (six weeks) 1 Sept 20 Jul Pension scheme receives contributions 1 month opt out window Eligible jobholder

18. Pay reference period – existing staff Consider Rachel aged 40 an existing employee of Smithco. She is not an existing member of Smithco’s pension scheme She earns £6,000 p.a. (working part-time 50% FTE = £12,000) At Smithco’s staging date she’s assessed as a non-eligible jobholder, as she has qualifying earnings below the earnings trigger Rachel goes full time on 6 May Smithco realises Rachel is now an eligible jobholder based on her earnings throughout the pay reference period.

19. Pay Reference Periods – Rachel without postponement 1 June 1 Jul Goes full-time £83£833 6 May £1000 First payroll after enrolment 20 May Eligible jobholder PRP Earnings Max auto-enrol Window (six weeks) 26 May enrolled (w.e.f 1 May) Assessment

20. Pay reference period – existing staff This is complicated for Rachel, the employer and the pension scheme. The assessment is based on a pay reference period that combines PT and FT earnings. The assessment is effective from 1 May and includes all qualifying earnings in May. Contributions are deducted via payroll and the enrolment information is sent to Rachel on 26 May. The required contributions are based on earnings in the full month of May. However Smithco could postpone the assessment to 1 June.

21. Pay Reference Periods – Rachel postponed until 1 Jun 1 Jun1 Jul Goes full-time £83£833 6 May £1000 Eligible jobholder PRP Earnings Opt in rights Assessment dateIssue tailored Postponement notice

22. Pay reference period – existing staff By postponing Rachel’s enrolment to 1st June, Smithco ensures that the assessment is based on a full pay reference period with FT earnings. The first payroll deduction of pension contributions also covers the first full month of FT earnings. Simplified ‘payroll to scheme’ procedures – no need to adjust normal schedule of contributions Pension scheme receives contributions after deduction from June’s pay.

23. Pay Reference Periods – Rachel postponed until 1 Jun 1 Jun 1 Jul1 Aug Goes full-time £83 £833 6 May £1000 Eligible jobholder Eligible jobholder PRP Earnings Opt in rights 1st payroll after AE date 20 Jun £1000 Enrolment date Postponement period Pension scheme receives contributions Opt out window 6 week automatic enrolment window

24. Summary Mike and Rachel: two examples of how postponement of assessment/enrolment can help reduce administrative complexity for employers and pension schemes It’s also easier for Mike and Rachel to understand! Postponement can be used on a range of other occasions For more information see Scottish Widows factsheet no.3

25. Every care has been taken to ensure that this information is correct and in accordance with our understanding of the law and HMRC practice, which may change. However, independent confirmation should be obtained before acting or refraining from acting in reliance upon the information given. Scottish Widows Limited. Registered in England and Wales No. 3196171. Registered Office in the United Kingdom at 25 Gresham Street, London EC2V 7HN. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 181655. FP0383