Following its review of Personal Tax, Pensions and Benefits in 2015, the States of Guernsey realised that 60% of the working age population do not have any private pension provision and intend to rely solely on the current state pension. As this poses significant risks to public finances, the States decided that it should develop policies aimed at ensuring adequate personal or workplace pension provision in Guernsey and Alderney.
At the States' meeting in February 2016 an outline proposal for a secondary pensions system was approved to encourage Guernsey and Alderney residents to make greater pension provision.
In the broadest terms, the proposals impose semi-compulsory pensions in that employers must automatically enrol staff either into a States' secondary pension scheme ("SPS") or private qualifying pension scheme, but employees can choose to opt out. That optout lasts for 2 years. When it expires, the employee will automatically be re-enrolled, however the employee can again opt-out, and so the process repeats.
Although the States will facilitate the establishment of the SPS, the delivery and investment activities would be undertaken by the private sector through a contract awarded under a competitive tendering process. The private sector administrator will have to offer a range of investment choices.
Timetable for Implementation
Detailed proposals for the new system are to be provided to the States by the end of 2017 for their consideration. Assuming the proposals are approved then automatic enrolment would commence in 2020 with the phasing-in of employee and employer contribution rates to be completed by 2027.
Summary of Proposals
- The secondary pension system will commence from 2020 from when employers must enrol their eligible employees automatically either into the SPS or, alternatively, into a qualifying pension scheme.
- A qualifying pension scheme will need to meet statutory requirements such as minimum levels of contribution rates/ benefits and good scheme governance.
- Employers and employees will be legally obliged to contribute at prescribed minimum levels following automatic enrolment unless an employee opts out. If an employee opts out, neither the employee nor the employer has to make any contributions.
- As the requirement to contribute to a secondary pension is expected to have a significant impact on employees and employers, the contribution rates will be phased in over seven years.
- Currently, the proposed responsibility spilt for contributions is approximately one third/two thirds employer/ employee, with the proposed rates by 2027 being 3.5% of gross annual salary for employers and 6.5% for employees (capped at an upper earnings limit).
- Employers cannot offer inducements for employees to opt out of the secondary pension system and must periodically reenrol employees who have opted out (reenrolment every 2 years is envisaged).
- If employers already contribute to a qualifying pension scheme for their employees then they do not have to contribute to the new secondary scheme as well, although they would be able to switch if they wished to do so. The qualification criteria for schemes have not yet been specified.
- The "pension pot" built up by an employee would belong to them and be part of their estate upon death.
- Employees can make additional contributions or lump sum investments by dealing directly with the scheme administrator. Employers will have no liability to make additional voluntary contributions.
- The States will continue to provide tax incentives for private pension saving. Proposals regarding self-employed and nonemployed individuals under pensionable age are deemed to be outside the scope of this memorandum. Further information can be supplied if required.
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