The DWP has issued its first consultation on the practical arrangements under the personal accounts regime, due to be introduced from 2012. Under the new regime every employer will have to make arrangements for automatic enrolment of all “jobholders” aged between 22 and state pension age who have "qualifying earnings" into a "qualifying scheme" or the default personal accounts scheme. This consultation deals with the first stages of the employer's duties: enrolment, information requirements, postponement of automatic enrolment and opting out.
The Pensions Act 2008 sets out the structure of the personal accounts regime, to be phased in gradually from 2012. Every employer will have to make arrangements for automatic enrolment of all “jobholders” (including agency workers) aged between 22 and state pension age who have "qualifying earnings", i.e. gross earnings (including bonuses, etc) between £5,035 and £33,540 into a "qualifying scheme" or the default personal accounts scheme, a trust-based occupational DC scheme to be regulated by HMRC and the Pensions Regulator. A "qualifying scheme" can be an occupational pension scheme or a "workplace personal pension scheme", i.e. a group personal pension, a stakeholder pension or a group self-invested personal pension. Jobholders may opt out but employers must not offer any inducement to do so. Those younger or older than the target age band can opt in and require an employer contribution. There will be automatic triennial re-enrolment; each time the jobholder will again have the option to opt out. For further detail see our briefing Pensions Act 2008 - Personal accounts (January 2009).
This consultation, which ends on 3 June 2009, is the first of three. It includes two sets of draft regulations. The short Pensions Regulator (Delegation of Powers) Regulations 2009, to come into force in Autumn 2009, will enable the Pensions Regulator to delegate certain compliance powers to external bodies, e.g. to issue compliance notices and penalties to employers and to gather certain information. The other draft regulations will be of much more interest to employers and trustees: the draft Pensions (Automatic Enrolment) Regulations 2009 (to come into effect from 2012) deal with:
- automatic enrolment of workers into a qualifying scheme
- information requirements for employers (to jobholders and to pension schemes)
- deduction of contributions
- arrangements for postponement of automatic enrolment
- arrangements for individual jobholders opting out.
The other two consultations, planned for “Spring and Autumn 2009”, will include proposals for:
- the rules of the personal accounts scheme
- the remaining elements of the employer's duties (including re-enrolment and opt ins, staging, phasing, qualifying schemes' criteria and certification)
- employment safeguards
- elements of the compliance regime, including information to be provided to the Pensions Regulator, sanctions and penalties.
STEPS EMPLOYERS MUST TAKE BEFORE AUTOMATIC ENROLMENT
Steps will include:
- identifying those workers who fall within the jobholder definition and so will be eligible for automatic enrolment
- providing the Pensions Regulator with specified information (Autumn consultation)
- establishing arrangements with an automatic enrolment scheme / ensuring that their scheme meets the criteria for a “qualifying scheme”; this is likely to require scheme amendments (e.g. few schemes currently provide for automatic enrolment).
TRIGGERING AUTOMATIC ENROLMENT
Subject to the arrangements for postponing automatic enrolment (below), a worker who is not already a member of a qualifying scheme will have to be automatically enrolled, and his membership of the scheme will begin:
- for a worker who, on the commencement date for the personal accounts regime, satisfies the criteria for a jobholder (age and qualifying earnings), on that date
- for any other worker, the date on which he meets the criteria, whether he does so on first starting work for the employer or later (e.g. because he reaches age 22 after starting work for the employer).
AUTOMATIC ENROLMENT JOINING PROCESS
Whether employers choose the default personal accounts scheme or a qualifying occupational or workplace personal pension scheme, the DWP believes that the timescale should be the same. We have prepared a timeline summarising the proposed requirements.
Automatic enrolment into an occupational pension scheme
An employer must, within 14 days from the automatic enrolment date (AED):
- take the necessary steps to complete the automatic enrolment process
- provide written enrolment information to the jobholder and
- provide certain compulsory and optional information about jobholders to the scheme jobholder consent is not required)
Automatic enrolment into a workplace personal pension scheme
An employer must:
- within seven days of the AED:
- make arrangements with the provider to ensure that the jobholder receives key features information
- provide written enrolment information to the jobholder
- provide certain compulsory and optional information about jobholders to the scheme (jobholder consent is not required)
- seven days after the jobholder receives the key features and enrolment information the contract will be completed; the agreement will be “deemed”; and the jobholder will then become an active member of the personal pension scheme their employer has enrolled them into, in accordance with the terms and conditions.
14 days is the maximum period for completing the automatic enrolment process for both occupational and workplace personal pension schemes. It is open to an employer to complete the process of admission to an occupational pension scheme in a single day if it wishes. However, the minimum joining window for a workplace personal pension scheme is seven days, because the jobholder must be given seven days from the AED to consider the scheme information before a contract can be deemed.
INFORMATION FOR EXISTING ACTIVE MEMBERS OF QUALIFYING SCHEMES
An employer must provide written information to a jobholder who is already an active member of a qualifying (occupational or personal) scheme within 30 days after the AED, stating:
- the name and contact details of the scheme
- confirmation that the scheme is a qualifying scheme.
DEDUCTION OF JOBHOLDER'S CONTRIBUTIONS
Contributions must be calculated with effect from the AED and deducted from the jobholder's remuneration on his first payday, even if that payday arises before the automatic enrolment process has been completed. Depending on when the AED falls within a jobholder’s pay cycle, the first deduction is likely to be for a partial pay period. The usual time limits apply for paying the contributions into the scheme.
POSTPONEMENT OF AUTOMATIC ENROLMENT
As an incentive to employers to continue to provide an existing scheme which is more generous than the personal accounts system, the draft regulations enable (but do not compel) an employer to postpone the automatic enrolment of a jobholder for a maximum period of 90 days if they automatically enrol the jobholder into a qualifying scheme that is:
- a qualifying defined benefit scheme or
- a DC scheme (occupational or personal) under which (broadly) the employer contributes 6 per cent, and the total contributions are at least 11 per cent, of qualifying earnings, on an ongoing basis (compared to the minimum contribution levels for DC schemes of 3 and 8 per cent respectively) or
- a hybrid scheme meeting conditions to be specified in the Autumn consultation.
An employer who postpones automatic enrolment must within 14 days of the AED give the jobholder written information about:
- the reasons for postponement
- the date on which automatic enrolment will commence
- how to obtain further information about pensions and saving for retirement.
Once the postponement period is complete the jobholder must be automatically enrolled into the scheme and must remain in that scheme for a minimum period of 90 days after the end of the postponement period, with contributions remaining at the above levels.
OPTING OUT A jobholder who has been automatically enrolled may opt out by giving the employer an opt out notice (paper or electronic), either in the form scheduled to the regulations or containing the following mandatory information:
- opting out of pension saving may affect the level of income in retirement
- a jobholder cannot be lawfully induced into opting out
- complaints of inducement to opt out should be made to the Regulator
- a jobholder may opt in again and the employer will be required to arrange for the jobholder to become an active member of an automatic enrolment scheme once in any 12 month period
- DC only: by opting out the jobholder will forego rights to contributions from the employer.
The opt out notice must be available only from the scheme, not from the employer (to reduce the risk of an employer advising on whether to participate or opt out), and the scheme must provide it on request. However, the reason for sending the notice to the employer is to enable it to stop payroll deductions quickly and minimise the need for contribution refunds.
The notice must be given (i.e. received by the employer) within 30 days after:
- occupational pension scheme: the day on which the jobholder becomes an active member of the scheme or the day on which he receives the enrolment information, whichever is later
- workplace personal pension scheme: the day on which the agreement is "deemed" (see above).
The employer must:
- inform the jobholder within 5 days of receipt if the notice is not valid because it was incorrectly completed or submitted
- send the notice to the scheme within 7 days of receipt
- refund the jobholder’s contributions in full (adjusted for tax where appropriate) within 21 days after the day on which the notice is given or by the second pay day after notice was given, whichever is the later (regardless of whether the employer has yet received the contributions back from the scheme).
The scheme must, within 21 days after it receives the notice from the employer, refund to the employer any contributions made on behalf or in respect of the jobholder. The DWP considers that this would not prevent an employer from agreeing that the scheme could retain any such contributions to offset scheme administrative expenses.
The Disclosure Regulations are currently being reviewed in the context of information to be given to new members during the opt out period.