Use

A large majority of organisations offer some form of pension as a core benefit. There are normally two types of pension scheme offered to employees:

Defined Contribution Scheme

A pension scheme where the contribution levels can vary and the final pension paid on retirement is influenced by the value put into the scheme and its performance on the stock market.

Defined Benefit Scheme

A pension scheme where the final pension payable on retirement is pre-defined as part of the scheme, usually as a percentage of salary for each year of employment.

Pensions can often be the driver to introduce Flexible Benefits solutions. By converting existing employee pension contributions to employer contributions during benefits enrolment, the organisation can make significant National Insurance savings. A Defined Contribution Scheme which currently offers, for example, 5% employer contributions and requires 2% employee contributions, would typically convert to a 7% employer contribution under a Flexible Benefits salary sacrificescheme.

Personal Pension is also a benefit that can operate in many ways when included in a Flexible Benefits scheme. This is often influenced by the nature of existing pension schemes within the organisation and/or the method of the Flexible Benefits scheme in operation.

Integration

Within Flexible Benefits for Great Britain (GB FlexBens), a ll miscellaneous plans are integrated with infotype Miscellaneous Plans (0377). Furthermore, if the miscellaneous plan is also a GB personal pension plan, it will also be integrated with infotype GB Pension (0071).

Prerequisites

To administer a personal pension plan, and to enable eligible employees to enrol in it, an organisation must have already defined and configured the core benefitsand/or standard benefitsit wishes to offer its employees.

Initially, the Benefits Administration framework is created in Customising, under Benefits Administration -> Basic Settings ; and under Benefits Administration -> Flexible Administration.

Subsequently, the specific personal pension planmust be created in the customising steps under Benefits Administration -> Plans -> Pension Plans (FLEX) .

For more detailed information on the individual Customising steps that must be followed to implement personal pension plans in GB FlexBens, see Pension Plan Customising in GB Flexible Benefits .

Each employee who enrols in a specific pension plan must have previously joined the specific pension plan they wish to enrol in, prior to the enrolment process itself.

Features

Pension Schemes and National Insurance Categories

Enrolment of certain pension plans will cause the National Insurance (NI) category of the employee to change. Therefore, if an employee enrols on either a COMPS and COSRS “contracted out” pension scheme, a NI category with a lower rate is assigned to the employee. The changing rules are as follows:

Such a change means that after enroling in either a COMPS or COSRS pension scheme, an employee’s infotype National Insurance (0069) record must be updated as shown in the above table. This process is derived from data held within table HR-GB: National Insurance Categories (T5G42).

Limits placed by organisations on flexible benefit pension schemes

Organisations that include personal pension plans within their Flexible Benefits schemes generally stipulate minimum contribution limits to encourage employees to remain in the pension scheme, ensuring they have some provision for when they retire. As such, often only 50% of the employer’s contribution can be flexed by employees to fund other benefits.

Furthermore, some organisations have rules such that the employee can only free up funds from pension to fund other benefits, so pension money cannot be taken as a refund into salary. Therefore, if an employee reduces the employer pension contributions as part of their Flexible Benefits selection, this surplus value - once all his or her benefit choices have been made - is reviewed.

If this surplus is less than or equal to the value of the pension selection, it will not be paid to the employee as a salary adjustment. Instead, it will be added back into his or her pension scheme or the employee will be prompted to review his of her benefits selection.