The Department for Work and Pensions (DWP) has introduced regulations detailing workplace pension reform in Parliament. The regulations that will be of most interest are:
- The Employers' Duties (Implementation) Regulations 2010 (the Implementation Regulations);
- The Draft Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010 (the Automatic Enrolment Regulations); and
- The Employers' Duties (Registration and Compliance) Regulations 2010 (the Registration Regulations).
This batch (featuring 11 separate pieces of secondary legislation) fills in the last missing details, and makes important changes from the draft regulations issued in September 2009. The key differences are in:
- The implementation of the regime - a lengthening of the staging process (from three to four years) and alterations to the phasing of contributions;
- Certification of quality defined contribution schemes - employers ability to pre-certify quality schemes removed; and
- The postponement of automatic enrolment - in particular covering jobholders on contracts of less than three months.
Finally, and attracting much publicity, the name (National Employment Savings Trust, or NEST) and branding of the government's personal accounts scheme was revealed prior to the publication of the regulations.
Other than as set out below, the final regulations are broadly the same as those issued in September 2009 (as discussed in our briefing notes "Personal accounts and auto-enrolment - what does this mean for you - for pension schemes and for employers).
Employers can now work out their exact staging date and the date they are required to notify employees of the commencement of automatic enrolment. Companies should start planning their implementation strategy, in particular considering:
- How will their employer duties be fulfilled? Will employers use NEST, existing pension schemes or a combination of both?
- If an existing pension scheme is to be used to fulfil employer duties, what changes might be needed to make this scheme compliant with automatic enrolment? Employers should consider discussing their preferred approach with the scheme's managers and trustees; and
- Working out the cost implications. Phasing will mean that larger employers will only have to contribute 1% of jobholder's qualifying earnings for the first few years. The overall cost impact should be assessed and, if possible, mitigated.
Similarly, managers and trustees of pension schemes will want to know when they might be affected by employers wanting to use those schemes to fulfil employer duties. Now is the time to plan when to have conversations and meetings with employers, and work out what changes will be required if existing schemes are to be used as part of an employer's response to workplace pension reform.
Staging - the monthly implementation timetable
The government announced a relaxation in the implementation of workplace pension reform in last December's Pre-Budget Report. This delay is detailed in the Implementation Regulations, which provide for a four year staging process for commencement of employer duties and a five year phasing of contributions.
Staging of employer duties will be carried out in 42 monthly tranches on the basis of total number of employees with each employer (spare months are built in to the timetable to allow for any catch up in processing required).
If, for whatever reason, an employer operates more than one pay as you earn (PAYE) scheme, then the staging date for the employer will be the staging date of the PAYE scheme with the earliest staging date (i.e. the PAYE scheme with the largest number of employees). New employers will be staged last of all in a period lasting from 1 March 2016 to 1 September 2016. (See table)
Phasing - delaying the revolution
The phasing of both employer and employee contributions is detailed in the Implementation Regulations. The phasing timetable for defined contribution employer contributions has also been lengthened, with the initial phase now lasting four years (rather than the original three years). (See table)
Phasing will proceed on these set dates irrespective of an employer's staging date. The largest employers will therefore pay four years of contributions at 1% of jobholder's qualifying earners from 2012. Smaller employers will pay at this rate for a decreasing length of time before all employers move to paying 2% of qualifying earning from October 2016 and the full 3% from October 2017.
Employers operating defined benefit or certain hybrid schemes will be able to defer automatic enrolment until October 2016 if the scheme remains open until then. If the scheme closes before this date then the employer must provide an alternative qualifying scheme for jobholders. If this alternative scheme is a defined contribution arrangement then employer will have to pay contributions back to its original staging date for jobholders who were postponed.
Certification of quality defined contribution schemes
The DWP has withdrawn draft regulations issued in September 2009 which covered an employer's ability to self-certify quality DC schemes in advance of their staging date. During last year's consultation various views were expressed on the proposals for self-certification, with many finding the previous drafting was too prescriptive or administratively burdensome. The DWP has decided to consider this issue further with the industry, and further consultation will be issued in time.
Postponement of automatic enrolment for higher quality schemes
New drafting in the Automatic Enrolment Regulations provides that an employer will not be able to postpone automatic enrolment for a jobholder who has already been postponed in the preceding 12 months. September's draft regulations prevented the postponement of automatic enrolment for a jobholder on a contract of less than three months. This arose from concerns that workers on a succession of short-term contracts for an employer that had taken advantage of the original provisions allowing postponement of auto-enrolment would never be able join a pension scheme.
Some respondents in September's consultation felt that the blanket would be unduly burdensome, and would not, in any case, fulfil its objectives of ensuring temporary workers were covered. The amendments to the Automatic Enrolment Regulations attempt to prevent avoidance of employer duties in respect of temporary workers but without being too prescriptive.
Other key amendments
- Re-enrolment - employers will be given greater control over the re-enrolment process by being able to choose a date within one month of the three-year anniversary of their staging date.
- Pay reference periods - the DWP and the Pensions Regulator (the Regulator) will produce guidance for employers on the triggers for auto-enrolment and the use of pay reference periods in determining when jobholders should be automatically enrolled.
- DC "quality test" - the DWP will consult as to how employers can best demonstrate compliance with the quality test that allows employers to postpone automatic enrolment.
- Employer compliance - most of the compliance regime has been scaled back through the Registration Regulations. The amount and scope of information that employers must provide the Regulator has been reduced, the need for employers and schemes to keep duplicate sets of records has been removed and the fixed rate penalty has been reduced from £500 to £400. One area has seen the Regulator's powers increased - the Regulator will now be able to look back over four years, rather than the originally drafted 12 months, when investigating possible inducements and considering issuing a compliance notice.
- Refunds - the due date for contributions deducted during the opt-out window has been changed from the 19th day of the second month after the month in which a jobholder is automatically enrolled to the last day of the second month.
NEST - the National Employment Savings Trust
The government's pension savings vehicle, temporarily referred to as the personal accounts scheme, had its name and branding revealed by the Personal Accounts Delivery Authority (PADA) in advance of the publication of the regulations.
The scheme will be known as the National Employment Savings Trust, or NEST, and will be run by the NEST Corporation. Lawrence Churchill, the current chair of the PPF, has been named as chair-designate of the NEST Corporation. Further information can be found on PADA's website.
The future of the reforms
Many commentators have speculated on the future of workplace pension reform under a future Conservative government. With an election due in the next few months, this is a valid question - especially as the Conservative party has promised a "fast and dirty" review of the policy if itassumes office. While such a review might herald alterations, the wholesale scrapping of the reforms is unlikely, with Conservative shadow pensions minister Nigel Waterson saying that the Tories would make auto-enrolment a priority if elected.