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
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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