Guernsey: Secondary Pensions In Guernsey: Are You Ready For It?

After several years of planning (and delays), The Secondary Pensions (Guernsey and Alderney) Law (Law) is due to shortly come into force for all employers. The Law's fundamental aim is tackling pensioner poverty on the island, by requiring all employers to set up a pension for all their eligible employees, enrol them into it, and begin mandatory contributions.

Recent statistics collected by the States of Guernsey on the issue of pensioner poverty produced worrying results: specifically, that some 60% of the island's population do not save into a pension. The Law seeks to address this issue by creation a system of pensions auto-enrolment, the implications of which for employers and their staff are wide reaching.

WHEN DOES THE LAW COME INTO FORCE?

There are different deadlines for when employers must comply with the Law, depending on the number of eligible employees working within the organisation. In summary:

ELIGIBLE EMPLOYEES

The Law applies to all employees if they are resident in Guernsey, Herm, Jethou, or Alderney who are:

• between the age of 16 and state pension age;
• not in full time education; and
• earn more than the lower earnings limit each year for Social Security contributions.

Provided they satisfy the above criteria, an employee will be known as a "Designated Employee" and generally their employer is required to automatically enrol them into a pension scheme. However, even if an employee does not meet the above criteria and requests to join the relevant scheme (known as a "Voluntary Employee"), they must also be allowed to do so.

For the purposes of the Law, it makes no difference if an employee is full time, part time, or works on a zero hours' contract. The employee must be covered by a secondary pension and the contributions owed are the same percentages of their salary.

MINIMUM CONTRIBUTIONS

The minimum contributions that an employer and employee must make are due to increase during the period 2024 – 2032. In summary:

Of course, an employer can choose the levels of contributions into the scheme, provided this is the same or higher than the minimum contributions in the table above and we note that many employers already do. It is also possible for the employer to pay all of the contribution itself, without the employee needing to make any contributions.

THE RELEVANT SCHEME

One of the most important points to note is that the relevant scheme must meet the requirements found in the Law. For a standard occupational defined contribution scheme, the requirements to become an "approbated scheme" which is the term the Law uses are as follows:

1. be an approved scheme which complies with section 150(2) of The Income Tax (Guernsey) Law, 1975 (the "1975 Law");
2. comply with the Pension Scheme and Gratuity Scheme Rules 2021, or under an equivalent or similar statutory pensions regulatory regime in the British Islands;
3. meet the minimum contributions (as outlined above); and
4. comply with certain new rules within the Law regarding refunds and triviality requirements (in particular, the relevant scheme must allow a member leaving after three months of the date of enrolment to choose between the making of a transfer payment into another scheme or deferred benefits).

Most existing occupational defined contribution schemes should already comply with the first two points, as they simply mirror the existing requirements in Guernsey for pension schemes, the third point is straightforward enough in that the schemes will need to meet the minimum contributions, which most already do. However, it is anticipated that most existing schemes are likely to require minor modifications in respect of point 4 above. For other types of schemes such as retirement annuity trusts or defined benefit schemes then the requirements are different to be considered and approbated scheme, and advice should be sought.

For employers that do not have any kind of scheme in place, the States have also introduced Your Island Plan (YIP), which is an approved, compliant secondary pensions scheme.

Employees do not have to use YIP as their preferred pension scheme, and they may seek further advice to find a scheme that best suits what they want to offer to their workforce as part of a wider incentives package. However, if a different scheme is used, an employer in this situation is required to provide its employees with information on both the scheme it has set up and YIP, so its employees can compare the two. Further advice should be taken if any employee specifically requests to join YIP rather than an employer's scheme.

WHAT INFORMATION DO EMPLOYEES HAVE TO BE PROVIDED WITH?

Prior to be enrolled, employees should be given the following information on their employer's scheme so that they can make a comparison with YIP:

• The costs and charges of the scheme;
• The key parties responsible for the governance of the scheme;
• Investment options; and
• Retirement benefits.

Employers need to go further than simply providing a web address that contains information on the scheme. Instead, employees should be given this information in an accessible format. The relevant pension provider should be in a position to provide this information.

IS IT POSSIBLE FOR AN EMPLOYEE TO OPT OUT OF HAVING A PENSION?

An employee is able to opt out of a secondary pension scheme but only after their employer has enrolled them using a prescribed form. However, any opting out isn't permanent so an employer will be required periodically to re-enrol any staff who have opted out.

MANDATORY PENSION SCHEMES

Some employers may choose to make it a condition of employment that all employees join their scheme, such that employees are not given the choice to opt out. Where this applies, employers do not have to give their staff the option of joining YIP.

DEFERRAL OF MEMBERSHIP FOR NEW JOINERS

If enrolment into an employer's scheme is not a condition of employment, it is possible for employers to postpone when they enrol an employee which, for Designated Employees, is up to a maximum of 3 months. Voluntary Employees should be enrolled within a month of their request (or within three months of their last opt out, whichever is later).

This postponement must be evidenced by providing the employee with a written notice that is obtainable from the States of Guernsey's website.

CONCLUSION

We have already seen many employers speaking with their current pension providers to ensure their scheme remains compliant with the Law. For any employer that does not have a scheme in place, we strongly recommend that they consult potential providers as soon as possible, as setting up a pension scheme can be a demanding task that may take time to finalise.

Even if an employer has a compliant scheme, the Law has further implications that we briefly consider below:

• If an organisation's pension scheme is not mandatory in its contracts of employment, there will need to be a consideration of whether any employees who are not enrolled will become Designated Employees on the relative operative date. If so, they would need to be enrolled.
• If an employer wishes to make a scheme compulsory within their contract of employment for existing staff, advice should be sought not only on the amendments to any employment contracts but also how best to engage and consult with existing employees on this issue.
• While employees may opt out of any scheme by giving evidence of this in writing, employers shouldn't offer any inducement for them to do so.
• Employers must ensure that they have effective record keeping to avoid non-compliance.

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.