You can use an existing pension scheme if it meets the legal requirements, and you are able to confirm this with your Pension Provider. If you don't have a scheme set up already you can engage with a Pension Provider to set one up or contact Your Island Pension (YIP) to set up a scheme with them.
Although there are lots of different Pension Providers, there are two types of pension schemes, and these are explained below. Information that you will be responsible for obtaining from your Pension Provider to confirm your scheme complies with the Law is also explained below. You will need to keep these records so you can produce these should an audit be carried out by Revenue Service.
Defined Contribution schemes
- The first, and most common type of Pension Scheme, is a Defined Contribution (DC) scheme. In these schemes, the contributions you and your Designated Employee pay are invested into individual pension pots. When your Designated Employee retires, the value of their pension pot will be paid to them as a pension.
- Your Pension Provider will be able to provide you with the following:
- confirmation that your Defined Contribution scheme has been approved, or deemed to be approved, under section 150 (2) or 157A of the Income Tax Law.
- confirmation that your Defined Contribution scheme falls under the Pension Scheme and Gratuity Scheme Rules 2021 or under an equivalent or similar statutory pensions regulatory regime in the British Islands, or other approved jurisdiction.
Defined Benefit schemes
- The second is called a Defined Benefit (DB) scheme, and this is a scheme where the contributions paid by you and your Designated Employee are used to provide them with a certain amount of pension benefits. Defined Benefit schemes are unlikely to be used for Secondary Pensions, and if you use one you should contact your Pension Provider for details on the scheme.
- Your Pension Provider will be able to provide you with the following:
- confirmation that your Defined Benefit scheme has been approved, or deemed to be approved, under section 150 (2) of the Income Tax Law.
- confirmation that your Defined Benefit scheme falls under the Pension Scheme and Gratuity Scheme Rules 2021 or under an equivalent or similar statutory pensions regulatory regime in the British Islands, or other approved jurisdiction.
- a report from an independent Actuary who is not linked to the Employer that confirms:
- they consider the benefits for most of the active members are likely to be at least equivalent to the benefits they would receive if they paid the Minimum Contributions in a Defined Contribution scheme; and,
- an opinion confirming the scheme funding arrangements are expected to meet the cost of the benefits when they are paid.
Using Your Island Pension (YIP), another pension provider, or multiple pension providers
- If you already provide a pension scheme that meets the legal requirements and you have made it a condition within your worker's Contract of Employment there won't be anything else for you to do.
- If you don't use Your Island Pension (YIP) for your pension and haven't made joining your pension scheme compulsory within your Designated Employee's Contract of Employment you will need to offer them the choice between the scheme you have set up, and YIP, if they are not already an active member of the scheme at your operative date.
- Although you can just use YIP for your pension, if you use another Pension Provider for your pension scheme, and you haven't made it compulsory in your Contracts of Employment, you will need to provide your Designated Employees with details of your scheme straightaway so they can compare it with YIP. The information on YIP for prospective members will be readily available on their website, and you will need to work with your Pension Provider to make sure that you have details ready for anyone you intend to enrol into your scheme. These details must be easy to understand and should explain the scheme, the contribution rates, and the investment arrangements, they will also need to comply with any regulatory requirements and your Pension Provider will be able to advise you of any that apply. Your Designated Employee will then need to be given time to review the two schemes to make sure they understand what is being offered by each scheme and can choose which one they want to join on their Notice.
- You do not need to use the same pension scheme or type of scheme for everyone however you will need to ensure that it is not discriminatory for you to do this, for example, if you only do this on a case-by-case basis or for certain groups of your workforce.
- You can use multiple schemes for your staff if you wish, therefore if you want to offer different pension schemes to different Designated Employees you can, so long as the schemes meet the legal requirement (your Pension Provider will be able to provide you with confirmation they do). For example, you might offer a Defined Benefit scheme but for short term contract Designated Employees you wish to provide a Defined Contribution scheme.
- If you only intend to offer different schemes on a case-by-case basis or for specific members of your workforce, you will need to consider this very carefully to ensure this is not discriminatory.
- You will need to ensure that you provide paperwork to your Designated Employee or Employee in a timely manner as they need to be allowed time to review the information you have given and get answers to any questions they have so they can make an informed decision.
- You can defer when you enrol your Designated Employees and Employees for 3 months, this means that you can group new entrants together and enrol them at the same time, for example once each quarter.
- Before you postpone the Automatic Enrolment of a Designated Employee, you will need to carefully consider whether you are treating them equally when applying this, and whether it is discriminatory if you only do it on a case-by-case basis, or only for certain groups of your workforce.
- If you decide to postpone the Automatic Enrolment of a Designated Employee, you will need to write to them before you do it and include in the letter the date they will join the scheme. When doing this for new staff we suggest doing this as part of their appointment letter or Contract of Employment so you both have a record of the date the deductions will commence. Once you have postponed the Automatic Enrolment of a Designated Employee, you cannot extend this period. As soon as they have reached 3 months employment they need to join, and have contributions deducted immediately.
- For example, if your Designated Employee starts work on 25 March and you have decided to defer their Automatic Enrolment for 3 months, you will enrol them on 25 June and their first contributions would be deducted from this date too.
- If you defer Automatic Enrolment so you can combine your new entrants together and enrol them in batches on a particular date you would need to make sure you have considered how this is going to work for your organisation so that you don't exceed 3 months employment before you enrol them. For example, you might decide to enrol new staff at the start of each quarter, so if they are starting on 25 March, they would be enrolled into your scheme at the start of the next quarter on 1 April and their first contributions would be deducted from this date too.