Good morning. I have five minutes to explain automatic enrolment – AE. There are two things that I’ll try to do.
1Alert you to AE.
2Explain how AE affects ministers and lay pastors in the Ministers’ Pension Fund.
Before I say anything more, pension are expensive. Most people have no idea at all how much it costs to provide an income for the twenty or thirty years or more that they might live after retirement. Unfortunately most people do not care when they are young enough to save enough to pay for their retirement, and care about it only when they are too old to have enough time left to save for it. Like it or not, the Government’s present arrangements are going to leave most of today’s young and even middle aged people very hard up in retirement unless they pay a lot more now.
first the alert
“Essex Hall” will be writing to treasurers. The Pensions Regulator will be writing to you. Do not ignore the Regulator’s letters. You can be fined for failing to comply with your AE obligation.
Your obligation starts on your staging date. The date depends on your PAYE reference number. The Regulator’s website will help you to find the date. In your search engine type “TPR staging date”. The first Google hit is likely to be the Regulator’s website with a link “What is your staging date”. Follow it and type your PAYE reference number in the box.
From then on you can follow what is on the Regulator’s website or other guidance on the Internet, including my work website. The only other thing that I will say now is about the choice of pension schemes open to you.
There are scores of pension schemes suitable for AE. I am not allowed to give you financial advice and nor are the GA or the MPF, but I can give a pointer. The Government realised that that there would be many small employers needing to find a suitable scheme, but there are fears that some providers may be unwilling toaccept very small employers. It therefore established theNational Employment Savings Trust (NEST)as a low costautomatic enrolmentpension scheme with a public service obligation to accept every employer,no matter how small, which wishes to use it for AE. I suggest that you look at NEST and then consider other providersof AE schemes about which you should take independent financial advice.
There is an alternative. Your employee might say that he or she already has a personal pension policy. It is very likely that that policy can be used as a qualifying scheme to which you contribute. If so you will not need to enrol that person into an AE scheme.
The note on my website that I suggested you look at has a list of useful websites, including one to the Regulator’s guidance “select-pension-automatic-enrolment.pdf”. I am sorry to say, but you might not be surprised, that, with the bureaucrat’s usual care, this guidance actually tells you nothing of very much use.
secondly, minister and lay pastors
Ministers and lay pastors are not employees but are office holders. This give you an AE problem, well a nuisance factor.
AE applies to “jobholders” which includes employees and other workers. For this purpose office holders are workers, so minister and lay pastors, if they earn £10,000 a year or more and are between 21 and the state pension age, they are job holders and must be enrolled automatically into an AE scheme, even if he or she is a member of the MPF.
The reason for the problem is that the MPF is neither a qualifying nor an AE scheme. It is not established for employees and therefore it is not an occupational scheme. If it were an occupational scheme, it would be subject to regulatory burdens which would have caused it to be closed down years ago. It is also not a personal pension scheme.
Therefore you must enrol your minster or lay pastor into an AE scheme. He or she may then opt out of it. You cannot opt out in advance, but only after being enrolled automatically. The Government has deliberately made it a complicated process. The law has safeguarding provisions to protect employees’ rights to AE. You cannot put any worker at a detriment in connection with AE. You cannot induce a worker to opt out. The MPF, because it would be treated as an adviser, cannot induce its members to opt out. You as congregations cannot do so and nor can the GA.
I can tell you what the law is and you, well ministers and law pastors who are members of the MPF, can decide what to do. There are three options.
(1)If you and your minister or lay pastor can afford to pay two sets of pension contributions, even when, from October 2018, the AE minimum contribution rates will have risen from the present total of 2% (on qualifying earnings) to a total of 8%, fine. You can run both schemes and improve your minister’s or lay pastor’s retirement chances. But, if you cannot afford, this you must choose between (2) and (3).
(2)Your minster or lay pastor opts out of your AE scheme and remains a member of the MPF.
(3)Your minster or lay pastor withdraws from the MPF and does not opt out of your AE scheme. You might agree to pay just the minimum contributions necessary or you could agree to pay more.
On paper it is as easy as that. The choice at its simplest level should boil down to option (2), which is a final salary pension at relatively high contributions, although actually not very high compared with what a similar scheme would cost elsewhere, or option (3), which is a much lower contribution rate to a money purchase scheme.
Predicting pensions is crystal ball stuff, but, of these two, it is almost certain that the MPF (option 2) gives a better chance of a decent pension in retirement.
The headache for congregations could be in option (1). If a minister or lay pastor does not opt out of AE, a congregation which cannot afford both sets of contributions will face financial difficulties, which at worst could lead to the question whether (a) it can continue to afford a paid ministry at all or (b) it can continue to afford a paid minister, but only with the inferior pension available under option (3). The knock-on effect is that a significant number of choices for option (3) will weaken the MPF.
So much for the Government’s intention to improve the provision of pensions.
Questions.
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