Pantheon Financial Management Ltd Making a Success of Pensions Reform Chris Rose and Mark Dowde May 2012

Pantheon Financial Management Ltd Independent Financial Advisers Corporate Services  Business Strategies; Business Protection  Employee Benefits Group Communications  Share Schemes; Redundancy Programmes  Retirement Counselling Private Client Services  Retirement Planning; Investment Planning  Tax & Trust Planning

Pantheon Financial Management Ltd Independent Financial Advisers The material provided by this presentation is for general information only and does not constitute investment, tax, legal of other forms of financial advice.

OVERVIEW Why reform workplace pensions? Changes to workplace pensions The National Employment Savings Trust (NEST)

NEST (NATIONAL EMPLOYMENT SAVINGS TRUST) (NATIONAL EMPLOYMENT SAVINGS TRUST) 10-11m people will be auto enrolled 10-11m people will be auto enrolled In 1901 there were 10 workers for every pensioner, now there are 4 workers for every pensioner and by 2050 this is expected to be 2 workers for every pensioner In 1901 there were 10 workers for every pensioner, now there are 4 workers for every pensioner and by 2050 this is expected to be 2 workers for every pensioner (Source: DWP Report May 2011)

Why Reform Workplace Pensions?

The Pension Commission Pension Commission reviewed the UK pensions system and made recommendations Pension Commission found that: -Up to 12 million people were not saving enough for retirement -Longevity – simply put, people are living longer in retirement.

The Pension Commission - Longevity

The Pension Commission State Pension could not meet this challenge Spending on State Benefits for pensioners / £84.6 billion / £189.1 billion* Taking no action would lead to an unaffordable burden on taxpayers *Projected –source: Pensions Policy Institute Key Facts / Scottish Life April 2012

The Pension Commission Recommendations Fairer, more generous State Pension coverage (flat rate £140 / week (no set date currently in place)) System of automatic enrolment into pension saving Minimum employer contribution to workers’ pensions New, national pension scheme designed to provide a simple and low cost way of saving for low-to-moderate earners

Changes to Workplace Pensions

Who Does What? DEPARTMENT FOR WORK & PENSIONS (DWP) Scope of automatic enrolment Staging and phasing timetable THE PENSIONS REGULATOR Monitor and regulate the employer duties. NEST (NATIONAL EMPLOYMENT SAVINGS TRUST) NEST (NATIONAL EMPLOYMENT SAVINGS TRUST) A new, trust-based pension scheme for low to moderate earners Public service obligation to accept all employers

2012 Reforms: What’s Changing? Employers have to offer a contribution to certain employees No action will result in a qualifying employee automatically saving through a workplace pension. This is as a result of Automatic enrolment Objective: Saving is the norm

Impact on Employers (Pensions Act 2008 and 2010 Review ) Automatic enrolment of “eligible jobholders” From age 22 up to State Pension Age Those earning more than the tax threshold “staged” in from Oct 2012, depending on employee numbers 3 month waiting period, plus flexibility to bring forward Re-enrolment required every 3 years, new post review flexibility Individuals can choose to opt out but employer cannot

Impact on Employers (Pensions Act 2008 and 2010 Review ) Minimum Employer Contributions – Employers have to pay in at least part of a minimum contribution with individuals and HMRC contributing the rest Contributions based on earnings band £5,564 and £42,475 in 2012/13 tax year (Based on Draft Regulation source: Contributions based on earnings band £5,564 and £42,475 in 2012/13 tax year (Based on Draft Regulation source: - : “The Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2012” 3% of “band earnings” minimum employer contribution + tax relief + employee contribution = total 8% minimum contribution Total minimum contribution payable from October 2018 Example – earnings £30,000 – E’er £62.41 & E’ee £ gross per month (source: The Pension Regulator May 2012)

Minimum contribution levels The total minimum contribution to a employees retirement pot will be 8% of the qualifying earnings Of this 8%, the employer will have to contribute a minimum of 3% The rest will be made up of tax relief and the employee’s contribution

DWP: Planned Stages Large Employers Medium Employers Small / Micro Employers New PAYEs Staging dates 01/10/2012 through to 01/02/2018 (Source: Pension Regulator Website May 2012)

The Administrator of NEST Tata Consultancy Services IT services, business solutions and outsourcing International – 137 offices in 42 countries – 88 delivery centres in 18 countries 160,000 employees globally More than 60 sites in the UK Tata and Diligenta (UK Operation) – experienced partners Diligenta is a UK based, FSA regulated subsidiary of Tata Consultancy Services – the world’s leading IT consulting, services and business outsourcing (BPO) organisations. Diligenta manage and support Life & Pensions operations 3 rd Party Administrators – More than 30 years experience in UK insurance sector with 90 insurance clients including the top 7 UK insurers (including AXA Group, Phoenix Group, L&G, Skandia)

NEST Investment Options NEST Retirement Fund NEST Higher Risk Fund NEST Pre-retirement Fund NEST Ethical Fund NEST Sharia Fund NEST Lower Growth Fund NEST Corporate Bond Fund

Charges – How will NEST compare? NEST - 1.8% Contribution Charge; 0.3% Annual Management Charge (AMC) Contribution charge deducted until set cost met. Gross contribution of £100 will result in £98.20 investment. Calculated by NEST to average out at a 0.5% AMC but dependent on term to retirement. Combination of Contribution Charge and AMC.

2012 – Employer Options Choices for employees Existing DB and DC schemes New DC automatic enrolment schemes Existing/New Existing DB and DC schemes NEST + Sole schemeAssociate, entry level or base scheme

How NEST can be used Sole scheme Offered to all employees Associate scheme For a category of employee to sit alongside existing scheme e.g. the low paid Entry level scheme Where your existing scheme has a waiting period Base scheme To which minimum contributions are made for all employees, with another scheme on top

Any Questions?

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