The DWP has published a consultation paper setting out its plans to simplify the auto-enrolment legislation. The proposed changes include technical changes to the definition of ‘pay reference period’ so that it is aligned to the way in which payroll systems currently operate, an exemption for workers who have voluntarily opted-out of their employer’s pension scheme in the 12 months before the statutory auto-enrolment duty first arises and an extension of the ‘joining window’ from one month to six weeks.

The DWP has also confirmed its plan to introduce an exemption for workers with fixed or enhanced protection. It is also considering introducing an easement for employers that automatically enrol all of their staff.

Background

Six months after the UK’s largest employers were first required to automatically enrol eligible workers into a qualifying pension scheme, the DWP is planning to make several technical changes to the auto-enrolment legislation in a bid to iron out various teething problems that have emerged. The paper makes clear that this is not a root and branch review of the Government's policy on automatic enrolment. Instead, "it is a pragmatic response to practical issues identified during implementation that can be improved".

Key changes

The key changes proposed in the consultation paper are:

  • a change to the definition of 'pay reference period' for the purpose of assessing worker eligibility so that the statutory definition is aligned with standard payroll reference periods;
  • a change to the definition of 'pay reference period' for the purpose of assessing whether a DC scheme meets the criteria to be a qualifying scheme;
  • allowing all employers to retain for up to two months the initial contributions paid by all new members, including entitled workers who opt-in and workers who are contractually enrolled, so that it is easier to deal with refunds where an individual opts-out (regardless of how they were enrolled);
  • exempting workers who have voluntarily opted-out of their employer’s pension scheme in the 12 months before the statutory duty first arises;
  • extending the ‘joining window’ (i.e. the period within which an employer must automatically enrol a worker into a qualifying pension scheme after they become eligible or opt-in) from one month to six weeks; and
  • clarifying the form and content of opt-out notices.

Exemption for workers with fixed or enhanced protection

The paper also confirms that the DWP plans to include a power in the Pensions Bill to enable the Secretary of State to exempt workers who have registered for fixed or enhanced protection against the lifetime allowance charge from the automatic enrolment duty. This news will be welcomed by employers who are concerned about the prospect of individuals with fixed or enhanced protection being hit with a significant tax bill if they fail to opt-out in time. However, the precise detail of how this exemption will work and the circumstances in which it will apply are not yet known and, until this exemption comes into force (which is likely to be towards the end of this year at the earliest), workers with fixed or enhanced protection still need to opt-out within the first month in order to maintain their tax protection.

The consultation paper also indicates that the Secretary of State will use this power to exempt from the statutory auto-enrolment duty:

  • workers who hand in their notice during a postponement or transitional period; and
  • workers who have given notice of retirement.

Possible easement for employers that auto-enrol all staff

Finally, the DWP is also considering introducing an easement for employers who go beyond the minimum statutory requirements and automatically enrol all of their staff into a qualifying pension scheme, regardless of eligibility. This would be a welcome change. In particular, it would be extremely helpful if:

  • the statutory opt-out rules applied to all workers who are automatically or contractually enrolled (regardless of eligibility); and
  • the re-enrolment requirements were consistent for all workers who are automatically or contractually enrolled (again regardless of eligibility).

When will these changes apply?

The consultation period ends on 7 May 2013 and the changes detailed in the consultation paper are due to come into force by April 2014 at the latest. However, some of the changes, such as the new definition of ‘pay reference period’, are likely to come into force before that date so that the additional flexibility will be available to employers as soon as possible. The DWP is also consulting on the transitional arrangements that should apply so that these changes do not create difficulties for employers that have already passed, or are approaching, their auto-enrolment staging date.