Technical Changes to Automatic Enrolment
13 March 2015
The Government’s response to the consultation on draft regulations to further simplify the automatic enrolment process has been published. The Regulations that bring certain changes into force from 1 April 2015 have also been laid in Parliament and published.
Since the original framework was laid down in Pensions Act 2008 and the Occupational and Personal Pensions Schemes (Automatic Enrolment) Regulations 2010, there have been changes to the legislation to make automatic enrolment easier to operate.
More recently, following a consultation on technical changes to automatic enrolment, run in early 2013, measures were included in the Pensions Act 2014, which are intended to further simplify automatic enrolment and reduce burdens on employers. These measures are designed to:
- Introduce an alternative quality requirement for DB schemes
- Simplify the information requirements on employers
- Create exceptions to the employer duty in certain circumstances.
From 1 December 2014 to 9 January 2015 the Department for Work & Pensions (DWP) consulted on draft regulations which set out the detail of these measures. In particular they sought views on whether the draft regulations achieve the overarching policy intent of simplifying the process for employers. The DWP also wanted to ensure that those who will benefit most from pension saving continue to be automatically enrolled and that there are no unintended consequences for individual savers.
Responses were broadly supportive of the aims of the regulations with most respondents agreeing that they would reduce burdens on employers.
The Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2015 make the following changes as detailed in the explanatory note:
- These Regulations amend the Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010, by reducing the information requirements on employers, introducing certain circumstances where the employer duty is turned into a discretion and also prescribing alternative quality requirements for defined benefits schemes.
- Regulation 5 makes provision under section 87A of the Pensions Act 2008 introducing further exceptions to the employer duties contained in that Act. Where those exceptions apply, the relevant sections of the Act are modified.
- Where notice of termination of employment has been given, the employer duty to automatically enrol or re-enrol is turned into a discretion and the entitlement of a jobholder or worker to opt in to or join a scheme does not apply. Where it is agreed between the worker and employer that notice is withdrawn, the duties are imposed from the date of that agreement.
- The employer duty to automatically enrol or re-enrol a worker or jobholder is also turned into a discretion where a worker or jobholder has decided, in the last 12 months, to leave a qualifying scheme; where a jobholder benefits from certain tax protection; and where a worker has received a winding-up lump sum in the last 12 months. Regulation 5 also provides that where the employer exercises the power to make arrangements for the jobholder or worker to join a relevant scheme, the employer is to be treated as if they were discharging a duty.
- Regulation 8 amends the period of time in which an employer must give relevant information about the jobholder to the trustees or managers of the occupational pension scheme or personal pension scheme from one month to six weeks.
- Regulation 11 introduces alternative quality requirements for UK defined benefits schemes under section 23A(1)(a) and (b) of the 2008 Act, by inserting new regulations 32L and 32M in the 2010 Regulations. The requirements under section 23A(1)(a) are that the scheme meets the quality requirement under section 20 of the Act and also meets the prescribed conditions set out in new regulation 32L. The requirement under section 23A(1)(b) is that the cost of accrual of benefits for or in respect of an active member of the scheme must be at least a specified percentage of the member’s qualifying earnings or earnings as defined in new regulation 32M. New regulation 32M provides definitions for terms used in that requirement. Regulation 13 of these regulations makes consequential changes and regulation 14 makes similar changes in respect of non-UK schemes to reflect the new requirements.
- Regulations 3, 7 to 10, 12 and 15 amend the requirements imposed on employers under the 2010 Regulations with regard to the provision of information to employees, with the aim of reducing the burden to give several different pieces of information to different kinds of workers at different times.
- Regulation 3 amends the enrolment information to be given to all jobholders upon automatic enrolment and re-enrolment. Regulations 6 and 7 revoke regulation 17 of the 2010 Regulations and substitute a new regulation 21 so that the information to be given to jobholders and workers about opting in or joining pension saving may be combined. The amendments made by regulations 9 and 10 reduce the information to be given to employees in the cases of transition and postponement. The amendment made by regulation 12 removes the requirement to give any information to jobholders who are already active members of a qualifying scheme. Regulation 15 amends Schedule 2 by removing a number of paragraphs and simplifying the statements of information to be given.
In January the CIPP submitted its formal consultation response to the DWP. CIPP members broadly agreed with the proposals to simplify processes, however genuine concerns remain that unless great care is taken when forming the detailed processes, they will actually become more complicated rather than being simplified. We anticipate that The Pensions Regulator will continue to provide comprehensive guidance.