‘Secondary Pensions’ – Update for Guernsey employers

Any local employers in Guernsey who are not yet aware of the term ‘Secondary Pensions’ will certainly become aware of it over the coming 12 months.

The ‘Secondary Pensions’ regime is a compulsory workplace pension system that is similar to the UK’s ‘Auto-Enrolment’ regime, introduced in 2012, which made it compulsory for employers to automatically enrol their eligible workers into a pension scheme. The employer must also pay money into the scheme.

The intention is for the ‘Secondary Pensions’ regime to come into effect in 2020, once a selected default pension scheme has been established by the States of Guernsey.

Why is it being introduced?
The population demographic of Guernsey is changing. Over the next 20 to 30 years more people will be living longer, there will be a larger proportion of elderly people and fewer employed and paying tax and insurance by comparison. Those who don’t make adequate provision with a private pension may be wholly reliant on the taxpayer through the benefits system, which will add to the strain on tomorrow’s taxpayer.

The States initiated a Personal Tax, Pensions and Benefits Review to examine how to meet the challenge of controlling government income and expenditure levels while enabling the community to maintain the standards of living and public services that it enjoys, expects and needs. The review’s recommendations were debated by the States in March 2015 and approved with amendments.

The States is addressing the issues identified in respect of retirement in two ways: firstly, the age at which an individual will become entitled to the Old Age Pension will increase on a phased basis from 2020 from age 65 to age 70; and secondly, the introduction of ‘Secondary Pensions’ to help combat potential issues by ensuring individuals are not wholly reliant on the Old Age Pension and can supplement this with other sources of income in their retirement.

Given the increase in the age at which individuals would be entitled to their Old Age Pension, having private pension savings, which can be accessed from age 50 onwards (as opposed to up to age 70 with the Old Age Pension), can ensure that people have something to rely on prior to being entitled to their Old Age Pension.

What will Guernsey employers be required to do?
The proposals are yet to be finalised, but the current expectation is that from 2020 the States will make available a default secondary pensions scheme into which employers can enrol their employees.

Employers who already provide their employees with a pension scheme may not be required to do anything and will be able to continue with their current arrangement. However, this will only be permissible if the scheme is considered to be a ‘qualifying scheme’ and the level of contributions that the employer is making is consistent with the required contribution rates that the States will apply as part of the secondary pensions’ regime.

Employers can also decide not to opt into the States’ default secondary pension scheme and instead either establish their own qualifying scheme or join an existing qualifying scheme that is offered by a locally licensed and regulated pension provider.

Who can employers speak to?
The final proposals will set out a deadline for implementation and there will be a significant number of local employers having to undertake this process simultaneously. Therefore the sooner Guernsey-based employers start to consider their options the better.

It is strongly recommended that employers engage a suitably qualified independent financial adviser to assist them in their review of suitable pension providers and options and to make a recommendation to them for the most appropriate solution.

What can Sovereign offer?
Sovereign is a specialist and experienced pension provider that is fully regulated by the Guernsey Financial Services Commission for the formation and management of pension schemes. We have operated in Guernsey for more than a decade, now employing more than 40 local staff and managing pension schemes on behalf of thousands of clients, both individuals and corporates.

Sovereign is uniquely placed to provide cost-effective, regulated and tax-approved retirement solutions to suit the specific needs of Guernsey-based employers in satisfying the secondary pensions’ requirements. These include:

• Multi-employer occupational pension plans;
• Bespoke occupational pension plans;
• Multi-member retirement annuity trust schemes, which offer even greater flexibility.

All such solutions are approved by the Guernsey Revenue Service and would therefore qualify for tax relief for individual contributions as well as for deductions for contributions paid by an employer.

Multi-employer Occupational Pension Plan:

• Approved by the Guernsey Revenue Service
• Regulated by the Guernsey Financial Services Commission
• Streamlined application, take on and establishment
• Cost-effective for employers of all sizes

Bespoke Occupational Pension Plan:

• Approved by the Guernsey Revenue Service
• Regulated by the Guernsey Financial Services Commission
• Plan Rules and parameters fully customisable to suit an employer‘s requirements

Multi-member Retirement Annuity Trust Scheme:

• Approved by the Guernsey Revenue Service
• Regulated by the Guernsey Financial Services Commission
• Plan Rules and parameters fully customisable to suit an employer‘s requirements
• Flexibility in terms of benefits, including loans for members
• All contributions vest immediately

Sovereign is fully independent and is therefore able to work with all suitably qualified local independent financial advisers, local investment management firms and any other adviser or consultant who may be appointed by an employer to act on their behalf.

For more information, contact your local Sovereign representative or Sean Gillease, Business Development Manager for Sovereign Trust (Channel Islands) Limited by email or call +44 (0) 1481 742229

Sovereign Trust (Channel Islands) Limited and Sovereign Trust (Guernsey) Limited are regulated by the Guernsey Financial Services Commission and licensed in respect of the formation, management and administration of pension schemes.