Automatic enrolment: technical changes

27 January 2016

A consultation on draft regulations has been published for proposed technical changes intended to simplify the automatic enrolment process.

A summary of the changes is detailed below and given the very short timescale for responses (16 February 2016) if you have any comments you would like us to feed back, please email the policy team.

Exceptions to the employer duty

From 1 April 2015 exceptions to the employer duty for certain individuals was introduced. It is proposed that company directors; and genuine partners in Limited Liability Partnerships (LLPs) are included in this exception as automatic enrolment may not be appropriate.

Tax Protected Status

Lifetime Allowance for pension contributions will be reduced from £1.25million to £1million with effect from 6 April 2016. Transitional protection for individuals who think they will be affected by the change will be introduced alongside this reduction to ensure that individuals are protected from potentially retrospective tax charges arising from the reduction. Legislation will be amended to provide the discretion for employers under automatic enrolment legislation to be exempt from the duties in relation to anyone with the new tax protected status from 6 April 2016.

Winding Up Lump Sums (WULSs)

Legislation introduced in April 2015 allows the employer to choose whether or not to enrol workers to whom they have paid a WULS subject to an undertaking given by the employer to HMRC, who are then re-employed by the same employer within 12 months of the payment of the WULS. Regulations will be amended to clarify the policy intention as there is a possible unintended consequence of the current drafting, particularly where the WULS has been paid more than 12 months before automatic enrolment applies.

Re-declaration of compliance

There are currently two deadlines prescribed in law for the re-declaration of compliance; one for employers who have no one to re-enrol, and a different one for those employers who do. The proposed change is that there will only be one date for the re-declaration.

Early Automatic Enrolment – bringing your staging date forward

There are prescriptive conditions which employers must satisfy if they want to bring their staging dates forward and for those employers with no-one to enrol, there is currently no way to bring their staging date forward unless they set up a shell pension scheme. The proposed changes for these employers include removing the requirement to obtain agreement from pension schemes, remove the condition to give TPR one month’s notice when they want to bring forward their staging date, allow them to bring forward their staging date to any date, not just the 1st of the month date as currently prescribed and to also allow them to submit their declaration of compliance to TPR at the same time, if they wish.

Transitional easement for certain formerly contracted-out salary-related schemes

Employers using defined benefits schemes for their automatic enrolment duties were able to demonstrate scheme quality by the existence of a valid contracting-out certificate. From 6 April 2016, employers offering defined benefits schemes will no longer be able to contract their employees out. To ensure that their schemes qualify for automatic enrolment, employers would have to use the Test Scheme Standard or the alternative quality requirements for defined benefits schemes. The proposed changes would allow, for a transitional period only, the employers of schemes that satisfy the contracting out conditions on 5 April 2016 and have not changed the benefits in their schemes to apply the cost of accruals test at scheme level.

Technical changes to automatic enrolment: consultation on draft regulations (Jan 2016)

Draft regulations: The Occupational and Personal Pension Schemes (Automatic Enrolment) (Miscellaneous Amendments) Regulations 2016