In July, the Department for Work and Pensions (DWP) published a consultation paper entitled Workplace pensions reform: Completing the legislative framework for auto-enrolment.

This paper follows an informal consultation conducted in April 2011 in which the DWP outlined its plans to make additional amendments to secondary legislation where necessary to implement reviewers’ proposals. This latest consultation also marks the final stage in the DWP’s legislative plans ahead of the 2012 implementation date for the auto-enrolment regime.

In addition, the DWP has also published four draft statutory instruments and a further guidance note on money purchase certification, as follows:

  • Automatic Enrolment (Miscellaneous Amendments) Regulations 2011;
  • Automatic Enrolment (Miscellaneous Amendments) (No. 2) Regulations 2011;
  • Automatic Enrolment (Offshore Employment) Order 2011;
  • Compromise Agreements (Pensions Act 2008) (Description of Person) Order 2011; and
  • Guidance on certifying money purchase pension schemes and the money purchase element of certain hybrid pension schemes.  

Some significant aspects of the consultation and regulations include:

Moratorium for small and micro employers

The 2011 Budget announced a moratorium for micro business such that for employers with fewer than ten full-time employees immediately before 1 April 2011, the entry dates for auto-enrolment have been postponed if they otherwise have been set before 1 April 2014.

The ‘test tranche’ of employers who currently have staging dates of 1 March 2014 will also move to 1 April 2014.

Single micro-employers will be given new staging dates over the period 1 October 2014 to 1 January 2016.

Early staging for large employers

Conversely, large employers with staging dates in October and November 2012 have the option to bring this forward to 1 July 2012. In order to do so, they must notify the Pensions Regulator (TPR).

Jobholder test

The current regulations have introduced the ‘person A’ test, designed to prevent ‘accidental jobholders’ being auto-enrolled. These are individuals with one-off spikes in qualifying earnings that brought them over the qualifying earnings threshold.

The DWP had expressed concerns that this test would require an ongoing monitoring systems of individuals’ earnings. However, the earnings trigger is to be increased to £7,475 under the Pensions Bill. It is expected that this will reduce the likelihood of one-off spikes and so the DWP has now stated that it intends to remove the person A test altogether.

Requirements for self-certification

An employer with money purchase or personal pension schemes in the UK or EEA must provide for a certain level of contributions to qualify as an ‘automatic enrolment scheme’. The new regulations introduce three tests to satisfy this requirement, namely:

  • Tier 1: contributions of at least 9% of pensionable pay, including 4% employer contributions;
  • Tier 2: contributions of at least 8% of pensionable pay, including 3% employer contributions, provided at least 85% of the total pay bill is pensionable; or
  • Tier 3: contributions of at least 7% of pensionable pay, including 3% employer contributions, provided all pay is pensionable.  

Further guidance on this has also been published.

Seafarers and offshore workers

Seafarers and offshore workers are currently excluded from auto-enrolment, but the DWP intends to extend the new employer duties to these workers, insofar as they work (or ordinarily work) in Great Britain.

The consultation will run until 11 October 2011.

For further background information on the auto-enrolment regime, please click on the following link to read our briefing note online.