The eagerly awaited autumn consultation on automatic enrolment ("Workplace Pension Reform - Completing the Picture") has been issued by the DWP. Starting from October 2012 employers will be required to automatically enrol many of their employees into a qualifying pension scheme.
The main issues covered in this consultation are:
- Staging the implementation
- Further details on employer duties, including re-enrolment
- Quality requirements and self-certification for qualifying schemes
Staging the implementation
The proposal is that the employer duties will be staged over a 3 year period (referred to as the "staging period") from October 2012 starting with the largest employers. The final details will not be published until the Regulations are laid next year. Employers starting to trade after October 2012 will be in one of the last groups - regardless of size. The Pensions Regulator will be responsible for writing to each employer at 12 months and at 3 months before their staging date, informing them of their duties.
Employers who can demonstrate that they already have a system in place, or are at an advanced stage, can bring their automatic-enrolment date forward on giving notice to the Regulator.
The contributions for defined contribution schemes are also to be phased in from October 2012 as set out in the table.
Employers offering a DB or hybrid qualifying scheme can delay automatic enrolment until the 3 year staging period is complete (i.e. until October 2015). Jobholders will be able to opt-in to these schemes at any time during that period.
Voluntary enrolment: Employers are to be required to inform in writing those jobholders who do not qualify for automatic enrolment on the grounds of age that they are entitled to join the automatic enrolment scheme. Where a jobholder wishes to join, he will then be treated as a qualifying jobholder and the automatic enrolment process must be followed.
Similar rules will apply for jobholders earning less than the qualifying amount, except the employer is required to make arrangements for them to become a member of a registered pension scheme, not necessarily an automatic enrolment scheme.
Automatic re-enrolment: It is proposed that each employer must carry out a re-enrolment exercise for its employees every 3 years - the first date will be 3 years from its staging date (the date on which it first became required to operate automatic enrolment). Those jobholders who have opted out within the last 12 months would not be automatically re-enrolled. This is a helpful provision as it had been feared that the re-enrolment requirement would attach to each individual jobholder, making it administratively very complex for the employer.
Quality requirements - self-certification
The draft regulations provide that employers offering defined contribution schemes must certify that their scheme is on track to meet the required contribution level. There is an easement where contributions for an individual have fallen below the required average level because of a pay increase during the year.
Sponsors of defined benefit schemes can self-certify that the scheme meets the quality standard in accordance with regulations and guidance to be issued by the Secretary of State. The regulations as currently drafted require the employer to be of the opinion that the scheme satisfies the quality requirement in relation to "any jobholder". However the employer may reach that opinion by using a sample of jobholders, sufficient in number and character to give a reasonable indication as to whether the quality requirement has been met.
Compliance and penalties
The compliance regime will be operated by the Pensions Regulator.
It is proposed that employers will be required to register with the Regulator within 9 weeks of their staging date and re-register every 3 years. Employers and scheme trustees/providers will have to keep records of enrolments and opt-outs for a period of 6 years.
There is a suggested flat rate "wake up call" fixed penalty of £500. Escalating penalty notices will depend on the size of the employer (from £50 per day for 1-4 workers to £10,000 per day for 500+ workers). Those receiving a penalty notice will have 28 days to request a review.
Time to start planning
All employers should be considering how they intend fulfilling their automatic enrolment obligations, whether using a current scheme or through a new arrangement. Careful consideration must be given to any pension scheme to ensure that it satisfies all the qualifying requirements and changes may be need to recruitment and human resources procedures and record keeping to ensure compliance. We will be issuing further guidance in this area.
Nabarro's Automatic Enrolment Briefing can be found here
The DWP's autumn consultation