Introduced under the Pensions Act 2008, the secondary legislation implementing the main provisions relating to automatic pension enrolment (auto-enrolment) was brought into force on 30 June 2012 by the Pensions Act 2008 (Commencement No 13) Order 2012 (SI2012/1682).

From 1 October 2012, all employers with over 1200 employees in their PAYE scheme as at 1 April 2012 have been obliged to automatically enrol eligible jobholders into an auto-enrolment scheme unless they are already active members of a qualifying pension scheme. This process will continue to be staged according to employer PAYE scheme size and will not be completed for all existing employers until April 2017.

Postponement

An employer can choose to postpone their duty to enrol workers into an auto-enrolment scheme by up to three months. The date on which the postponement period ends is a date of the employers choosing and is known as the ‘deferral date’.

An employer can only use postponement once for any particular worker and only at a particular point in the employer’s auto-enrolment process:

  • the employer’s staging date (in relation to a worker already employed by the employer on the staging date).
  • the first day of a worker’s employment (in relation to a worker starting employment after the employer’s staging date).
  • the first day on which a worker already in employment becomes eligible for auto-enrolment (for example, because the worker reaches the age of 22 or earns more than the earnings trigger).

Even where an employer uses a postponement period, the employer should still take steps to categorise the workforce, however an assessment of whether a worker is eligible for auto-enrolment will not have to be made until the end of the postponement period.

There are several practical reasons why many employers are likely to use postponement. These include smoothing the staging process from the outset, aligning existing payroll processes with the new process required by auto-enrolment and avoiding the need to auto-enrol short-term workers, i.e. those who will be employed for less than three months.

Giving notice at the start of Postponement

To take advantage of postponement, an employer must give a worker notice of the ‘deferral date’ – the date postponement is to end. An employer that chooses to use postponement must provide the prescribed information to a worker within a one month period beginning on the day after the point at which the employer uses postponement i.e. one of the three options above.

A jobholder who is in a waiting period can still voluntarily opt in to his employer’s automatic enrolment scheme during the waiting period.

At the end of Postponement

At the end of the period of postponement, an employer will have to assess whether a worker is eligible for auto-enrolment with effect from his deferral date. It follows that the employer will be required to take one or more of the following steps:

  • Auto-enrol the worker in an automatic enrolment scheme if he is an eligible jobholder.
  • Provide information about the employer’s qualifying scheme if the worker is not eligible for auto-enrolment because he is already an active member of an auto-enrolment scheme.
  • Provide information about a non-eligible jobholder’s right to opt in to an automatic enrolment scheme.
  • Provide information about an entitled worker’s right to opt in to a pension scheme.

Transitional Period

Employers who operate an existing defined benefit (DB) or hybrid pension scheme (providing defined contribution (DC) and DB benefits) can defer their auto-enrolment duties for a transitional period. The transitional period is a prescribed time period which lasts five years and three months beginning on 1 July 2012. If an employer uses the transitional period they cannot choose to auto enrol a worker at an earlier date than 1 October 2017 – the day after the transitional period ends.

The Transitional period only applies to particular eligible jobholders where the following prescribed conditions apply:

  • The eligible jobholder has been employed for a continuous period prior to the employer’s first auto-enrolment date.
  • At a point prior to the first auto-enrolment date the eligible jobholder was entitled to membership of the DB/hybrid scheme.
  • Since that point the eligible jobholder remains entitled to become an active member of the DB/hybrid scheme.
  • The DB/hybrid scheme is a qualifying scheme for auto-enrolment purposes.

As such, even where an employer makes use of the transitional period they will still have had to identify their first auto-enrolment date and categorise their workforce to understand who is an eligible jobholder. Continual assessment will also be necessary because a worker who is subject to the transitional period may cease to be an eligible jobholder during the transitional period, or one of the above four prescribed conditions may cease to apply, and at that point the transitional period will end.

Giving notice at the start of the Transitional Period

As with postponement, an employer wishing to make use of the transitional period must provide the relevant eligible jobholders with a notice. The notice must include prescribed information relating to the length of the transitional period and the options for the relevant eligible jobholder regarding opting in. The notice must be issued before the end of the period of one month from the employer’s first enrolment date. If the employer wishes to use postponement and the transitional period together this will affect the employer’s first auto-enrolment date.

At the end of the Transitional Period

The transitional period will end either on 30 September 2017 or on the date that the prescribed conditions cease to be met.

Where the transitional period ends on 30 September 2017:

  • The worker is to be treated as a new starter and their staging date will be 1 October 2017.
  • The employer will have to assess the worker as at this date.
  • If the worker is not already a member of the employer’s qualifying scheme they must be auto-enrolled; or
  • If the worker is an active member in the employer’s qualifying scheme the employer must then comply with the requirements to provide the relevant prescribed information on their membership and auto-enrolment duties.

Where the transitional period ends when the prescribed conditions cease to be met, the employer must enrol the eligible jobholder in either a DB or hybrid auto-enrolment scheme or a DC auto enrolment scheme, and the type of scheme the employer chooses will impact on the duties and process that the employer must comply with. For example, where the employer seeks to use a DB/hybrid scheme the eligible jobholder must become an active member from the date the prescribed conditions ceased to apply, whereas if a DC scheme is used the eligible jobholder must become a member with effect from their original auto-enrolment date.

Comment

Both postponement and transitional protection offer employers a method to defer their auto-enrolment duties, however there is an extra burden to ensure compliance with strict time periods and reporting requirements. Using either postponement and/or transitional protection will not assist employers in deferring their duty to categorise their workforce and employers should begin preparing for auto-enrolment now.