In the latest edition of Technical View, Gordons' Ruth Bamforth takes a trip through some of the exemptions and exceptions to employers' obligation to auto-enrol their workers.
Employers have since lobbied to exempt categories of eligible staff whose circumstances mean auto-enrolment is either undesirable or impractical.
Key changes
The joining window will be extended from one month to six weeks.
There will be an easement to the definition of “pay reference period” and also whether a DC plan is a qualifying scheme.
An employer will be able to choose whether or not to align with tax periods.
Particular examples include the following criteria:
Those who have registered for HM Revenue & Customs’ lifetime allowance charge protection – for example, enhanced protection, 2012 fixed protection and 2014 fixed protection. One of the protection conditions, which would be breached under auto-enrolment, is that the member has no further benefit accrual;
Those who are active members of money purchase schemes and have given notice of their retirement, and the notice period spans the auto-enrolment date.
The government has taken on board these concerns. Clause 34 of the 2013 pensions bill contained a regulation-making power to exempt particular categories of jobholder from the auto-enrolment requirements.
The Department for Work and Pensions is still considering how it will exercise this power. In its July 2013 briefing paper it set out the following core principles which will inform the clause 34 exemptions:
Is pension saving likely to put the individual at financial or legal risk?
Are the individuals unlikely to benefit from pension saving?
Are employers able to identify the individuals with minimal burden?
Once the pensions bill has been given royal assent, likely to be spring 2014, the DWP will issue a formal consultation paper to discuss exemptions.
Contractual enrolment exemptions
Some employers have elected to contractually enrol all workers, regardless of age and earnings, into a pension scheme. These employers, however, are still subject to the auto-enrolment duty, for example where the worker has opted out.
In practice, therefore, they must monitor and assess their workforce and take all necessary action to comply with the legislative requirements. The DWP has consulted on whether it should exempt employers who contractually enrol all workers into a qualifying scheme from the auto-enrolment duty.
The consultation response states that it is keen to work with stakeholders to better align the contractual enrolment and auto-enrolment processes to reduce administrative burdens. There is currently no date for any consultation on this issue.
Other exceptions and easements
The DWP understands that the auto-enrolment regime is complicated. The 2013 Automatic Enrolment Amendment Regulations introduced a number of useful exceptions and easements. The main ones are as follows:
From April 1 2014 the joining window for auto-enrolment, re-enrolment and enrolment following an opt-in will be extended from one month to six weeks;
The DWP has recognised that the current one-month window can prove difficult for employers with workers on fluctuating earnings or on zero-hours contracts.
While the extension to the joining window is a useful easement, the DWP is clear in its consultation response document that it expects employers to enrol workers in advance of the six-week deadline. Consequential changes are being made to the information and other requirements to reflect the joining window extension.
From November 1 2013 there will be an easement to the definition of ‘pay reference period’ used to determine both whether a jobholder has to be auto-enrolled and also whether a defined contribution scheme is a qualifying scheme.
An employer will be able to choose whether to apply the current definition – the normal pay cycle – or whether to align with tax periods. This change is designed to fit better with payroll software.
Other easements effective from November 1 are as follows:
Employers may pay over contributions deducted during the first three months of membership by the fourth month after joining. The usual deadline of the month following the one in which the contributions were deducted applies after the first three months;
The quality requirements for defined benefit schemes have been updated to ensure the date from which a pension is payable links directly to the increase in state pension age;
The period within which an employer must register with the Pensions Regulator after its staging date has been increased from four to five months.
Ruth Bamforth is a barrister at law firm Gordons
