The Pensions Regulator has recently consulted on whether to implement changes to auto enrolment with effect from April 2016. The changes aim to simplify the auto enrolment process and reduce burdens on employers by introducing a simpler process for re-declaration of compliance, a simpler process for employers to bring their staging date forward and further exceptions to the employer duties in certain circumstances.
Re-declaration of compliance
There are currently two deadlines for re-declaration of compliance, depending on whether or not the employer has individuals to re-enrol. The Regulator has had feedback that these are confusing for employers and is therefore proposing to have the same deadline of 5 months after the 3rd anniversary of the staging date or last re-enrolment date.
Bringing the staging date forward
The Regulator considers that the existing provisions set overly prescriptive conditions for employers who wish to bring their staging date forward. There are three proposed changes:
- removal of the need to obtain agreement from a pension scheme for those employers who have no-one to enrol;
- a change to the requirement to give the Regulator one month’s notice when an employer wants to bring their staging date forward – instead the employer must notify the Regulator no later than the day before the chosen new staging date and can declare at the same time; and
- where the employer has no-one to enrol, they can bring their staging date forward to any date (not just the 1st of the month as currently prescribed).
Exceptions to the employer duty
Company directors: the Regulator considers that the discretion to exempt certain employees from the auto enrolment obligations should be extended to company directors (where those directors have a contract of employment with the company) and genuine partners of a limited liability partnership (LLP) (i.e. those partners who are not employees for tax purposes). This means the employer has the discretion to enrol such individuals if it wishes to do so but is not obliged to. The Regulator’s view is that directors who are workers should be able to decide at their own board meeting whether they want a pension or not and therefore would not gain anything from auto enrolment. This extension to the exemption aims to reduce the burdens on small businesses, but will be made available to all businesses.
2016 tax protection: The discretion will also be extended to any person with the new tax protected status from 6 April 2016. The reasoning is that this will help prevent the risk of individuals being subjected to substantial tax charges should they fail to opt out of auto enrolment.
Winding-up lump sums: finally, as a result of a possible unintended consequence of the current drafting, the legislation is being amended to clarify that the exception in relation to a winding-up lump sum (WULS) will only apply where an individual receives a WULS, is re-employed by the same employer and attains eligibility for auto enrolment, all within 12 months of the payment of the WULS. In such a situation the employer can choose whether or not to enrol that worker. If the worker who received the WULS only becomes eligible for auto enrolment after the 12 month period has elapsed, they should be auto enrolled in the usual way.
Transitional easement for certain formerly contracted-out salary-related schemes
The consultation also sought views on the Regulator’s proposal to allow (for a transitional period only) employers of defined benefits schemes that satisfy the contracting out condition on 5 April 2016 and who have not changed the benefits in their schemes to apply the cost of accruals test at scheme level.
This proposed easement allows the test to be applied at scheme level instead of at benefit scale level, even if there is a material difference in the cost of the benefits accruing to different groups of members. The easement will apply until the earlier of: (a) the effective date of the first actuarial report on or after 6 April 2016 or (b) 5 April 2019.
The consultation closed on 16 February and the Regulator is currently analysing the feedback it has received.