This February the States of Guernsey is set to debate the
introduction of a system of pension auto-enrolment for Guernsey.
The debate is an attempt to address what is a demographic time-bomb
arising from a dual problem of an ageing workforce coupled with low
pension participation levels. The States has estimated as little as
40% of the working population have pension provision, so it is
little surprise that they have sought to follow the model of
auto-enrolment that has been implemented by the UK Government.
Whilst there have been and continue to be challenges for employers
of all sizes in the implementation of auto-enrolment in the UK, it
has resulted in a significant jump of pension participation over
the first two years from 55% in 2012 up to 70% in 2014, according
to the latest figures.
The key elements of the proposal which are outlined in a Policy
Letter published on the States website (click
here) can be summarised as follows:
The States would establish a new low cost pension vehicle
called the Secondary Pension Scheme which could be used by any
employer or self-employed individuals;
Employers would have a legal duty to automatically enrol
eligible employees into either a qualifying scheme or the Secondary
Multi-member Retirement Annuity Trusts (RATs) which have been
set up by employers could operate as qualifying schemes, but
individual RATs would not;
Both individuals and employers would be required to make
minimum contributions into either a qualifying scheme or the
Secondary Pension Scheme;
Employees would be able to opt-out of the Scheme, but would
then be re-enrolled potentially every 2 years unless they opted out
Employers would not be permitted to offer inducements for
employees to opt out of the Scheme.
The States is looking at various options in relation to the
level of contributions, but the indicative figures suggested in the
Policy Letter envisage an initial combined contribution level of 2%
in 2020, which is probably the earliest that the new Law could come
into force. The contribution would rise to 10% in 2027 as
The basic model proposed by the States is very similar to that
adopted in the UK. However, it is noticeable that a great deal of
focus within the proposals has been applied to the Secondary
Pension Scheme, to alleviate some of the potential administrative
burden for small employers and those who are self-employed. Given
the number of small employers within Guernsey, the majority of whom
currently do not offer any pension provision, it is critical to the
success of these proposals that the Secondary Pension Scheme is
both simple to use and low cost, otherwise the potential negative
impact on Guernsey's economy is all too obvious. For those
employers who already offer a pension scheme, aside from ensuring
contributions at least match the minimum levels, they will need to
review and some will need to amend their scheme rules in due course
to ensure that they are compliant.
In addition, interestingly the ultimate rates proposed by the
States are actually higher than those adopted in the UK, where the
maximum level has been set at 4% for employees, 3% by employers and
topped up with an additional 1% tax relief. Whilst the details of
the provisions such as the level of contributions and timescale for
introduction, are likely to be subject to significant debate over
the coming months and years, it seems almost inconceivable that
Guernsey will not adopt some form of auto-enrolment in the near
future. If it does not, it will certainly face a real risk of its
demographic time-bomb exploding.
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guide to the subject matter. Specialist advice should be sought
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