The Pensioneer Trustee Company (Guernsey) Limited
T +44 (0) 1481 743760
Various personal finance surveys over the past decade or so have revealed that when it comes to pension provision, Guernsey like many places still has a long way to go. According to the Guernsey review of Personal Tax, Pensions and Benefits in 2015, the States of Guernsey found that 60% of the working age population do not have any private pension provision and intend to rely solely on the current state pension. State safety nets are not what they used to be either – three out of four people will not qualify for a full Guernsey pension, according to government statistics and whether the State scheme will also be available in decades to come is questionable.
So, with this kind of context, it’s perhaps not surprising that pensions have been a hot topic and are becoming an increasingly important part of employee benefits packages. In Guernsey, steps have already been taken to correct the current position with the new proposed Guernsey Secondary Pension Scheme. This new scheme is scheduled to begin a phased launch in 2020 so, for businesses looking to get ahead of the proposed deadline, now is the time to take action.
What is the Guernsey Secondary Pension Scheme?
It is a scheme designed to help overcome the issue that so many will face – not having enough resources to live comfortably on in retirement. Its objective is to ensure that Guernsey residents won’t have to rely purely on a states pension and benefits when the time comes. Instead, they will also have a ‘secondary’ pension, whether that’s the state scheme, or an occupational or multi-member RATS set up by an employer.
What obligation does it place on employers?
The proposed State Scheme won’t be compulsory for individuals. However, employers will have a legal duty to make sure that employees are enrolled. This will be designed to work much like auto-enrolment in the UK. If employees don’t want to be a part of the scheme then they can opt out and be taken out of the employer’s scheme. If an employee wants to opt back in at any time they can do so. However, employees cannot opt out before they have been opted in, so employers need to be on the ball when it comes to ensuring that all employees are auto-enrolled.
What about employer contributions?
Employers who already contribute to an approved pension scheme for their employees won’t be under an obligation to contribute to the new secondary scheme. Under those circumstances the scheme will operate without employer contribution – however, it doesn’t remove the obligation on the employer to ensure that the scheme is set up and employees are enrolled. Where employers are contributing to the Secondary Pension Scheme, the proposed contributions split is likely to be one third/two thirds employer/ employee. Employers can choose to switch and contribute under the new Secondary Pension Scheme to an existing or alternative scheme – and there can be advantages to doing so, particularly with an occupational or multi-member RATS.
The Flexible Alternatives to the State Secondary Pension Scheme
Employers must enrol employees into the State Secondary Pension Scheme – or into another scheme that is eligible. Outside of the state option, an alternative scheme would need to meet certain standards and statutory requirements, including good scheme governance and minimum levels of contribution rates. In terms of those schemes that will qualify, both occupational and multi-member RATS will, both of which will offer more flexibility and wider choice than a set State run plan.
Advantages of Retirement Annuity Trust Schemes (RATS)
RATS have been in existence for decades and Guernsey has a mature market with plenty of providers. The schemes can offer increased flexibility and also offer wider investment choices. Whether local or International investment solutions are preferred, RATS can cater to the requirements. Loans too, are available for members of a RATS where as the State Scheme is unlikely to offer such a facility. Employees too can also contribute regularly or add additional voluntary contributions which the State Scheme is unlikely to allow. Personal service will still be a key consideration and a benefit of using a local trustee where members can be offered a high level of client service.
When are the deadlines for taking action?
RATS can be established quickly and efficiently, and before the State Scheme comes into force. By 2020 employers will have to start enrolling eligible members, either into occupational or multi-member RATS, or the State Scheme. It’s expected that the new scheme will have a fairly significant impact on both employers and employees and so, as a result, contribution rates are going to be phased in over the following seven years, from 2020 – 2027.
Forward planning and flexibility for companies is always key, and having time to consider various options, like a RATS scheme for employees, will assist and help prepare for the eventuality. And, given the obligations on employers to get to grips with this new scheme, it’s more than likely that for many an eligible occupational or multi-member RATS will be a better option than the State Scheme.