Auto-Enrolment: Master Trusts and Group Personal Pensions
Many of you will now need to consider a Workplace Pension either as a business owner or as a member of staff. Here at Pensions Management Limited, we have been guiding our clients through the process of auto-enrolment for Workplace Pensions for the last couple of years and we are now finding that the number of SMEs which have reached, or are getting close to, their staging date is reaching a peak. This article looks at what type of pension scheme to choose for auto-enrolment – Master Trusts or Group Personal Pensions.
With Auto-enrolment, start early
Auto-enrolment legislation is proving to be complicated for most companies to implement, even though it shouldn’t be as difficult as many companies are finding it. From experience, our advice is to start early by speaking to your payroll provider and ourselves for help and advice. This advice also applies to companies who already run a Staff Pension Scheme, as it may well not be a qualifying scheme for auto-enrolment purposes. Knowing what schemes qualify for auto-enrolment purposes is one of the key areas which companies are finding most difficult.
Master Trusts or Group Personal Pensions
The key decision that has to be made is to what type of pension scheme to use for auto-enrolment. There are basically two types, one being a Group Personal Pension (GPP) which may still be qualifying for auto-enrolment purposes if in place already, with the other being a Master Trust (otherwise known as an Occupational Pension Fund). It is highly unlikely that an historic Group Personal Pension (GPP) will be a qualifying scheme and few Insurance Companies accept small groups of employees into a new GPP. The Government’s NEST scheme (National Employers Savings Trust) must accept any group of employees, and is one example of a Master Trust.
So what are the differences between the two? Group Personal Pensions are regulated by the Financial Conduct Authority (FCA) and are subject to regulatory scrutiny. Master Trusts, on the other hand, are overseen by Trustees and there is no conduct or prudential supervision of them. This is an area of concern, because many of the available Master Trusts set up for the specific purpose of attracting auto-enrolling employers may not meet the quality criteria for auto-enrolment outlined by the Pensions Regulator.
Our advice is that if you are offered a Master Trust scheme to use for your staff and their auto-enrolment requirements, please ensure that you perform due diligence on the Master Trust as firstly, it may not be around in a few years time and secondly, the government is looking closely at pension vehicles that can be used by scammers to facilitate pensions fraud and a Master Trust can be just one of these types of schemes. NEST, of course, has been endorsed by the government and has its governance in place.
What About Staff Earning Less Than £11,000 per Annum?
Another point to look at is that if you have members of staff earning less than £11,000 per annum, in general a Master Trust deducts pension contributions on a net pay basis, i.e. from gross salary. Alternatively, NEST, a couple of other Master Trust providers and Group Personal Pension Plans operate a tax relief at source scheme, whereby even if a member of staff does not pay tax, the contribution is deducted from pay after NI contributions are deducted, sent across to the provider and the provider immediately claims 20% tax relief which is also put into the Members Pension Pot. This means that for every £10 a member contributes under a net pay arrangement, only £10 is put into the Pension pot, however, on tax relief at source, regardless of whether the member pays tax or not, £12.50 is actually put into the Pension pot for a £10 employee contribution.
Contact us for Help and Advice on Workplace Pensions and Auto Enrolment
There are many factors to consider when selecting the type of pension you want for your Workplace Pension Scheme. Get your choice wrong and the consequences can be significant and long term. Contact us or call us on 0121 693 0690 for a free initial discussion.