In October this year the automatic enrolment requirements will have been in force for three years and larger employers need to prepare for their first automatic re-enrolment date. All employers also need to decide how to respond to recent changes designed to simplify the auto-enrolment requirements, which include four new circumstances in which workers do not need to be automatically enrolled.
Automatic re-enrolment: Points to note
Under the automatic enrolment legislation, approximately every three years employers are required to automatically re-enrol workers who have:
- previously had an automatic enrolment date whilst employed by them
- opted out or otherwise chosen to leave a qualifying scheme more than twelve months before the re-enrolment date, and
- who are eligible jobholders on the employer’s re-enrolment date.
An employer must choose its automatic re-enrolment date, which can be any date within a six month window, starting three months before the third anniversary of its original staging date (i.e. the date on which the auto-enrolment requirements first applied to that employer) and ending three months after that third anniversary.
The process for automatic re-enrolment is the same as the automatic enrolment process. However, significantly, employers cannot use postponement in connection with re-enrolment. Workers who are automatically re-enrolled have the same right to opt-out and receive a refund of their contributions as those who are automatically enrolled.
Automatic re-enrolment: Key actions
There are a number of actions that employers need to take in connection with their first re-enrolment date, including:
- deciding when the re-enrolment date will be – employers can choose the most suitable date for them within the six month re-enrolment window (see above);
- assessing who is eligible to be automatically re-enrolled – this is a standalone assessment which must be carried out in addition to the regular assessment that an employer carries out in every pay reference period. Employers also need to decide whether or not to automatically reenrol workers covered by the new exclusions from automatic enrolment (see below);
- testing software - we recommend that employers test their auto-enrolment software in advance of their re-enrolment date to ensure that it will assess eligibility and trigger automatic re-enrolment as required;
- preparing appropriate communications – employers may wish to tailor the statutory autoenrolment communications for individuals who are being re-enrolled. They should also consider how to raise awareness in advance so that affected staff are not taken by surprise; and UK pensions speedbrief - Auto-enrolment update: Preparing for automatic re-enrolment and responding to recent simplification
- submitting a declaration of compliance to the Pensions Regulator –this must be submitted within two months after the re-enrolment date or, if no workers need to be re-enrolled, the day before the third anniversary of the date on which an employer submitted its initial declaration of compliance. Failure to do this is likely to result in a fine.
Recent changes to the auto-enrolment process
Recent changes have been introduced to simplify the auto-enrolment process and ease the burden on employers. These are:
- the introduction of four new exemptions to the employer duty to auto-enrol eligible workers;
- a simplification of the auto-enrolment information requirements; and
- the introduction of a new alternative quality requirement for defined benefit pension schemes.
The previous Government recognised that pension saving may not be appropriate for everyone. Therefore, it introduced four new exemptions from auto-enrolment for:
- workers in notice periods – this applies where a worker has given notice to end their employment (whether resignation or retirement) or been given notice of dismissal within six weeks of their auto-enrolment or re-enrolment date;
- former members – where a worker has left an employer’s qualifying scheme at their own request within the last 12 months, the employer does not have to enrol or re-enrol that individual should they subsequently become eligible;
- individuals with tax protection – this applies where an employer has “reasonable grounds to believe” that a worker has one of the following forms of protection against the lifetime allowance tax charge:
- primary protection
- enhanced protection
- fixed protection 2012
- fixed protection 2014, or
- individual protection 2014
(Note: the lifetime allowance is the maximum amount of pension saving that an individual can build up in registered pension schemes which benefits from favourable tax treatment); and
- certain individuals who have been paid winding-up lump sums – this applies where a worker was paid a winding up lump sum within the 12 months before the re-enrolment date whilst in employment with the employer, then ceased employment and was subsequently reemployed by the same employer.
Where these exemptions apply an employer may still auto-enrol the relevant individual but it does not have to. In relation to exception 3, employers should ask their staff to notify them if they have one of the relevant forms of protection as this would mean that they do not have to automatically enrol or reenrol them, so avoiding the risk that the individual may lose their tax protection and face a significant tax charge. Employers may also want to ask new joiners if they have any of these forms of tax protection for the same reason.
Simplified information requirements
The previous Government also recognised that the auto-enrolment information obligations were onerous and caused confusion among workers. As a result, amendments have been made which are designed to reduce and simplify the information obligations. The key changes include:
- the information that must be sent to eligible workers who are auto-enrolled, re-enrolled or opt in has been simplified;
- there is now only one template postponement notice (rather than four);
- employers are no longer required to give information to individuals who are already active members of an employer’s “qualifying scheme” on their auto-enrolment date;
- the information that has to be given to non-eligible jobholders and entitled workers has been amended so that employers can now issue a single notice to both types of worker.
Employers are not required to change their existing auto-enrolment literature and they can continue to use it if they want to. However, some employers may wish to take advantage of the simplified information requirements to reduce the number of different auto-enrolment communications that they need to issue and to make them more user-friendly.
Alternative quality requirement for defined benefit schemes
A new alternative quality requirement for DB schemes has been introduced to assist schemes that cease to be contracted-out from next April.
The recent changes to the auto-enrolment requirements are welcome, particularly the exemption for workers with protection against the lifetime allowance tax charge and the simplifications to the information requirements. Employers need to decide whether or not to exclude workers who are covered by the new exemptions from being automatically enrolled and update their auto-enrolment software and processes accordingly. Employers may also wish to update their auto-enrolment communications to take advantage of the simplifications.
For employers approaching their first automatic re-enrolment date there are various actions that need to be taken, including selecting the relevant date. Although re-enrolment should prove to be less onerous than doing automatic enrolment first time around, employers need to ensure that their software, systems and communications are ready.