Of interest to all schemes is the DWP’s publication of the draft Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2015, which will simplify the process for automatic enrolment into workplace pensions. The consultation closes on 9 January 2015 and the DWP expects the regulations to come into force on 6 April 2015.
These proposed “technical changes” and are intended to: introduce an alternative quality requirement for DB schemes; simplify employers’ provision of information requirements; and create certain exceptions to the employer duty to auto-enrol.
The draft amending regulations published by the DWP for consultation will make a series of technical changes to the auto-enrolment regime, with a view to easing the administrative burden on small and micro employers due to reach their staging dates in 2015 and beyond. The main changes are intended to:
- Provide an alternative quality requirement for DB schemes
The Pensions Act 2008 currently provides for an alternative quality test for DB schemes, which is satisfied if the cost of providing benefits for members would require contributions equal to at least a prescribed percentage (which cannot be less than 8 per cent) of “relevant earnings” over a “relevant period”.
The draft regulations set out percentages for required contributions of between 9 per cent and 11 per cent of relevant earnings, depending on the definition of relevant earnings used. The prescribed definitions of relevant earnings follow those currently available for DC schemes. Where the scheme provides dependants’ benefits on death, the percentage of relevant earnings is reduced by 1 per cent in each case. The relevant period will be either that currently used by the scheme (as shown in its actuarial report), or 12 months.
Broadly speaking, future accruals in a particular scheme must require total contributions of at least 10 per cent of DB members' qualifying earnings or 9 per cent if no dependants' pensions are available. The new test will be useful for employers with schemes currently contracted out of the state second pension in view of the abolition of contracting-out in April 2016;
- Reduce the complexity of the provision-of-information requirements
It is proposed that the minimum key information which employers must give to employees will be reduced, for example by:
- simplifying the information that must be given when an employer uses a postponement period;
- the amount of information given to jobholders on auto-enrolment will also be reduced; and
- the requirement to provide certain information to jobholders who are contractually enrolled in their employer's qualifying scheme ahead of their auto-enrolment date will be revoked.
- Exempt individuals in four specific categories from the requirement to be auto-enrolled.
The employer can choose not to auto-enrol the employees who have:
- resigned, been dismissed or who are about to retire;
- opted out after being contractually enrolled in the 12 months before being auto-enrolled;
- received a winding-up lump sum and are re-employed by the same employer in the succeeding 12 months;
- accrued savings above the lifetime allowance and taken out enhanced or fixed protection.
In both the latter two cases, there could be potentially significant HMRC tax penalties if the employee is auto-enrolled.
The reduction of required information will be welcome to smaller employers, as will the exceptions to the duty to auto-enrol. The alternative quality test is intended to assist employers with contracted out schemes when they cease contracting out in April 2016. The intention is that the requirements should not cause extra work, be too complex, and be helpful to employers who have to implement auto-enrolment.