Draft regulations designed to simplify auto enrolment for small businesses have been published by the DWP.
The changes are due to come into force on 1 April 2015, just in time for an estimated 1.3 million small employers staging over the next few years1. Although we don't yet have the final regulations, it's expected that these will go through without any major changes.
At the moment, an employer could be sending out nine different types of information at different times to different workers. This is seen as complicated, confusing and costly. The draft regulations propose to distil these nine pieces of information into three:
The DWP recognised that there are some people for whom auto enrolment could be unsuitable or burdensome. The proposed changes allow the employer to decide whether to apply the auto or re-enrolment rules in certain cases whereas before, they had no choice.
The employer does not have to auto enrol, or re-enrol any jobholder where:
In addition, employers can elect not to allow workers to opt in or join a pension scheme during any period of notice of leaving, retirement or dismissal.
Aisha's auto enrolment date was 1st of August. She hands in her notice on 8th August. As this is within 6 weeks of her auto enrolment date, Aisha's employer decides to stop the auto enrolment process.
Jim, an entitled worker, is under 1 weeks' notice of dismissal for disciplinary reasons. He then asks to join a pension scheme but the employer elects not to proceed as Jim has asked to join during the notice period.
Some employers operate 'contractual enrolment' where workers are enrolled into a pension scheme when they join service unless they request otherwise. Those who don't want to join the pension scheme under contractual enrolment might still need to be auto enrolled. To prevent this, the proposed change allows employers to choose not to auto enrol jobholders who have ceased active membership of a qualifying scheme in the twelve months preceding the auto enrolment or re-enrolment date.
Lesley's employer operates a two month auto enrolment postponement period but contractually enrols workers into a qualifying pension scheme from day one. Lesley decided to opt out of the contractual enrolment. When Lesley is assessed after the auto enrolment postponement period has ended, her employer can choose not to auto enrol her as she came out of the pension scheme less than twelve months ago.
Some jobholders might lose their tax protection and might be subject to a tax charge if they are auto enrolled or re-enrolled and do not opt out within the opt out period. To prevent this, the proposals allow the employer to choose not to auto enrol or re-enrol jobholders where the employer has reasonable ground to believe that the jobholder has:
Individuals with protection should, as a starting point, give their employer a copy of the protection certificate.
Martin has enhanced protection and joins a new employer who has already staged. After postponement, Martin is assessed as an eligible jobholder but as he has given his employer a copy of the protection certificate, Martin's employer chooses not to auto enrol him. Martin's employer keeps a copy of the certificate on their records for future reference.
Jobholders who received a winding up lump sum (WULS) won't have to be auto enrolled if they ceased to be employed by the employer making the WULS since that date and are then re-employed by the same employer within a twelve month period.
Kamil was a member of his employers defined benefit scheme that was wound up in January and he received a winding up lump sum. He was made redundant as the company had lost orders but then re-employed in April when the employer won a new contract. The employer's staging date is September and as this is within twelve months of the WULS payment, Kamil's employer does not have to auto enrol him.
Various technical changes have been made to the Test Scheme Standard that DB schemes must meet in order to be treated as qualifying schemes. This should make it easier for DB schemes which will no longer be contracted out after April 2016. Full details can be found in the consultation document.
1 The Pensions Regulator, Employer Staging Forecast, January 2014
Business Development Manager
A self-confessed 'Pensions Geek', Jamie reads Pensions Acts for breakfast. He's spent the last three years working on automatic enrolment and has talked to hundreds of advisers and employers about how they can best prepare.