On 1 October the staged implementation of auto-enrolment officially began with the UK's largest employers, those employing over 120,000 people, becoming subject to the new duty to enrol their workers into a pension scheme. 16 smaller employers accelerated their staging date to 1 October, including the Pensions Regulator.
Auto-enrolment raises a number of tricky issues for employers, but may also raise some problems for employees. In particular, employees with enhanced or fixed protection will lose that protection if they do not opt out of auto-enrolment within one month of being auto-enrolled. If enhanced or fixed protection is lost, the employee becomes subject to a lifetime allowance ("LTA") of £1.5 million, rather than the higher LTA provided by enhanced or fixed protection. The LTA is the maximum amount of pension savings which an individual can build up in their lifetime without becoming subject to a penalty tax charge.
Unfortunately, employers can't just tell employees with enhanced or fixed protection to opt out as this could be considered a breach of the statutory prohibition on employers inducing workers to opt out of auto-enrolment. Employers can however let employees with enhanced or fixed protection know that they will lose that protection if they remain auto-enrolled and allow the employees to decide what action, if any, to take.
We can help employers by drafting or reviewing communications to such employees, and can assist with any other queries which employers or trustees may have about the implications of the new regime. We have also produced a summary of the new regime, along with an employer checklist and a trustee checklist of actions which should be taken which can be downloaded below.