On 6 April, the quality requirements that pension schemes being used for automatic enrolment (“qualifying schemes”) must meet are changing.

DC schemes – what’s changing?

At present, for a DC scheme to be a qualifying scheme:

  • The employer must make a contribution of at least 2% of the worker’s qualifying earnings.
  • The total contributions paid by the employer and the worker must be at least 5% of the worker’s qualifying earnings.

From 6 April, the minimum employer contribution will rise to 3% and the minimum total contribution will rise to 8%.

Qualifying earnings are broadly gross earnings including salary/wages, commission, bonuses, overtime, and statutory maternity, paternity, adoption and sick pay between £6,136 and £50,000 (2019/20 figures). Where pensionable pay under a scheme is based on something other than qualifying earnings, employers can choose to satisfy one of three sets of alternative contribution requirements. Pensionable pay will vary from scheme to scheme and will be defined in the scheme’s rules, but typically only includes basic pay. These alternative contribution requirements will also increase from 6 April.

DB schemes – what’s changing?

Before the abolition of contracting-out, a DB scheme was a qualifying scheme if it was contracted-out. When contracting-out was abolished in 2016, a new test was introduced under which a DB scheme must meet a prescribed cost-of-accruals test. This test must be met at either a scheme-wide level or, where there is a material difference in the cost of providing benefits for different groups of members, for each group of members.

However, a transitional easement allows schemes which were contracted-out at the time of abolition to apply the test at a scheme-wide level, even if there is a material cost difference, provided the scheme has not made any rule amendments which would mean it ceased to satisfy the contracting-out requirements had they still been in force. This easement expires on 5 April.

Alternative quality requirements also apply to DB schemes – these will remain unchanged.

What do employers need to do?

Employers should check that the pension scheme they use for automatic enrolment will continue to meet the relevant quality requirements from 6 April. If changes need to be made to the scheme to meet the new requirements, the employer should speak to the scheme trustees about these urgently.

Superfunds are a hot topic right now in the pensions industry. A consultation on the regulation of superfunds has recently closed, and a response from the Government is expected in the near future. But what are superfunds, and why might they be of interest to an employer with a defined benefit (DB) pension scheme?

What is a “superfund”?

  • A superfund is an occupational pension scheme which will, at a cost, accept a transfer of assets and liabilities from a DB pension scheme.
  • It’s a relatively new concept – there aren’t currently any operational superfunds, although market entrants are actively seeking business.
  • The entity running the superfund will be aiming to make a profit and distribute returns to external investors.  The expectation is that this can be achieved through cost efficiencies, better access to investment opportunities and the pooling of risk.
  • They will be regulated by the Pensions Regulator (although the authorisation framework is not yet in place) and the intention is that they will be eligible for the PPF.

Continue Reading Superfunds – another option for managing historic DB pension scheme liabilities?

At the end of January 2019, the Government launched a consultation which proposes plans to boost the protection given during redundancy to pregnant women and new parents returning to work.   Under the current law, before making an employee on maternity leave redundant, employers are under an obligation to offer them a suitable alternative vacancy where one is available.  They are therefore given priority over other employees who are also at risk of redundancy.

Under the new proposals, this protection could be extended so that it also applies during pregnancy, and continues for up to six months after a mother’s return to work from maternity leave.  Six months reflects the Government’s provisional view that this is a sufficient period to allow a new mother to re-establish herself in the workplace.  The consultation is also seeking views on offering a similar protection on return to work for other groups who take extended periods of leave for similar purposes, e.g. shared parental leave or adoption leave.

There are a number of questions that the Government will need to grapple with before any such changes are implemented.  For example, when would the protection on a return to work period commence if maternity leave is followed immediately by a period of annual leave, as is common in practice?

This consultation has been launched in response to a commitment the Government made in response to the Taylor Review, which was released in July 2017, and the proposed measure would go further than what is currently required under European Law.  It also comes after research commissioned by the Department for Business, Energy and Industrial Strategy found that one in nine women said they were dismissed when returning to work after having a child, or felt forced out.

The consultation is due to end at the beginning of April 2019, so watch this space.

Despite Brexit dominating the news, there are a number of employment law issues for employers to be aware of in 2019. Below are five of the key areas to keep in mind as we head into the new year.

Executive pay reporting

For financial years beginning on or after 1 January 2019, UK quoted companies with more than 250 employees will be required to report on ratios between the CEO and employees’ pay and benefits in the directors’ remuneration report. The first tranche of reporting will start in 2020, but affected companies should gather their evidence in good time to calculate their ratios by the deadline.

National minimum wage increases

From 1 April 2019 the national living wage is due to increase to £8.21 per hour. Hourly rates for workers aged at least 21 but under 25 will increase to £7.70, and rates for workers aged at least 18 but under 21 will increase to £6.15. Workers aged under 18 who are no longer of compulsory school age will increase to £4.35.

Payslips

The right to an itemised pay statement will be extended to workers (in addition to employees) from 6 April 2019.

Non-disclosure agreements

In light of recent controversy regarding the use of non-disclosure agreements, extra care will need to be given to wording in contracts of employment and settlement agreements regarding confidentiality and future conduct. Employers need to revise the wording of contractual documents and settlement documents to ensure they do not, deliberately or otherwise, prevent or hinder an employee from reporting alleged wrongdoing to appropriate authorities or from taking appropriate advice.

NIC charge on termination payments delayed

As of 6 April 2020, all termination payments above the £30,000 threshold will be subject to class 1A NICs. This measure has been postponed twice, but employers should be aware that it is due to be implemented next year.

Finally, while no wholesale changes to employment law are expected to come on 29 March 2019, Brexit will likely affect employees in an insolvency situation and will affect employers with European Works Councils. It is, however, unclear at this stage when such changes might take place and what the implications would be.

You may have seen recent – sensationalist – media headlines like:

“’We’re coming for you’ – Amber Rudd’s warning for bosses reckless with employee pensions” (ITV News)
“Reckless bosses who put workers’ pensions in danger could be jailed for seven years” (The Mirror)
Seven-year jail terms unveiled for pension fund mismanagement” (The Guardian)

The truth behind these headlines is that the government is starting to deliver on proposals made last year to strengthen the defined benefit (DB) pensions system in the UK.

In particular, the government has confirmed that:

  • The Pensions Regulator will be given new powers to better protect members of DB pension schemes.
  • Changes will also be made to the existing anti-avoidance, notifiable events, and voluntary clearance regimes, to further strengthen the DB regulatory framework.

Read our full Legal Update on this development.

Clearly, these changes could have a significant potential impact on employers with DB pension schemes. But what we don’t yet know is the detail of the proposed legislation.

Nor do we have any certainty on timescale. All we have to go on at present is a commitment from the Government to “bring forward legislation as soon as Parliamentary time allows”.

Moses, so we are told, was 120 years old when he died, and “biz hundert un tsvantsik” – [may you live] until 120 – is an old blessing. The joke it gave rise to is probably just as old: Harry is fed up with his noisy neighbour, so he confronts him: “May you live to 119!” he says to his neighbour. “May you live to 120!” he says to his neighbour’s wife. “Why the difference?” asks the neighbour. “After putting up with you, she deserves a year of peace and quiet.” is the reply.

Whilst pension scheme actuaries are not yet assuming that schemes will have 120 year olds, most scheme funding assumes that some pensioners will be receiving their pensions well into their 100s. This is the case even though the latest mortality tables show a slowdown in the rate of increase of longevity.

Continue Reading May you live to 120

In his latest podcast, Richard Goldstein looks at some legal developments and deadlines in the pensions industry that will occur, or are expected to occur, during the course of 2019. You can access the podcast here.

Listen to or subscribe to our UK Pensions Law podcast series via iTunes here. Please note that subscribing using this link will only work on a device with iTunes installed. Alternatively, if you don’t have iTunes, you can access our archive of UK Pensions Law podcasts here.

Look out for notifications of the latest UK Pensions Law podcasts in future blog posts – we welcome your feedback on particular topics/areas of interest.

We will be featuring contributions from our global employment and benefits team on this blog, highlighting particular topics and issues of interest to UK employers with operations overseas.

This post, the first in our series of “Spotlights”, provides you with links to recent commentary and guidance from our Employment & Benefits team in France:

  • The recent reforms implemented by the Macron Administration demonstrate that France wants to move towards increased flexibility for employers without neglecting employees’ rights. In his article for Bloomberg Law, Employment & Benefits partner Julien Haure covers two symbolic changes initiated by the Macron Administration: (i) the introduction of capped damages for employment litigation; and (ii) the simplification of telecommuting.
  • Another reform arising from the Macron Administration relates to staff representation. By 1 January 2020, every company in France with 11 employees or more should have organised elections for the implementation of a new staff representative body, referred to as the Social and Economic Council (SEC). Julian Haure and associate Marine Hamon outline the implications for employers in their article published by Law360.
  • The French courts have been grappling with the issue of employment status recently, as covered in the recent legal update by Employment & Benefits partner Régine Goury. This is an area that employers, in France and beyond, are continuing to monitor closely.
  • The “right to disconnect”, introduced in France in 2017, has been widely reported in the UK and overseas. Julien Haure and Marine Hamon examine the right in detail, covering employers’ obligations, the practical impact and the steps that employers can take to ensure compliance, in their article for Today’s General Counsel.

If you would like further guidance on employment and benefits issues in France, and/or would like to register for our French legal updates, please contact Julien Haure or Régine Goury.

The qualifying earnings bands for the purposes of automatic enrolment are due to increase on 6 April 2019. For the tax year 2019/2020, the lower qualifying earnings threshold will be £6,136 (instead of £6,032) and the upper qualifying earnings threshold will be £50,000 (instead of £46,350). The old faithful earnings trigger will continue to remain stable at £10,000.

Why is this important?

Since October 2012, employers have had to make arrangements for certain workers in the UK to be automatically enrolled into a pension scheme that satisfies certain conditions (a qualifying scheme). Very broadly, workers fall into one of three categories (summarised below).

Continue Reading New year, new rates… of automatic enrolment qualifying earnings

Mayer Brown launched A Global Guide to Employee Data Privacy recently, the latest in our series of global guides, covering 55 key countries in the Americas, Asia and EMEA.

In case you missed it, the guide is a useful resource for employers with operations in more than one country who need to navigate the many challenges of handling employee data in different jurisdictions.

It includes:

  • Key FAQs – covering:
    • the application of the GDPR alongside national laws in EU jurisdictions;
    • the laws regulating the handling of applicant and employee personal data;
    • the requirement to have privacy policies or similar agreements to deal with employee data;
    • best practice for retaining employee personal data;
    • restrictions on transferring employee data overseas or to third parties;
    • sanctions for breaching the relevant laws; and
    • potential pitfalls when handling employee data.
  • “In Brief” and “In Detail” Guidance – ensuring the guide will be a valuable starting point, providing both quick reference and more substantive content across the jurisdictions.

Please click here to view the guide in ebook format and to register for the guide in print-friendly, interactive PDF format.