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The Changing Shape Of Auto-Enrolment: Consultation Outcome

The Changing Shape Of Auto-Enrolment: Consultation Outcome

The DWP has just published its consultation response on changes that aim to simplify auto-enrolment. These changes have been welcomed, particularly by smaller employers who haven’t yet staged for auto-enrolment, and are due to come into force on 1 April 2015.

So what are the key changes? Will employers who have already staged need to change their processes?

Information to workers

Firstly, fewer auto-enrolment communications will be required from employers, particularly for those workers who are already in a qualifying scheme or who are not eligible to be auto-enrolled.  Employers can keep their current information processes if they prefer (assuming that the requirements are complied with), rather than take advantage of the simplified regime. Employers will need to decide what works for their staff, and the level of employee understanding/engagement. The DWP is keen to balance reducing the burden for employers, whilst at the same time protecting employee interests.
Exemptions from auto-enrolment

Going forward, certain workers will not need to be auto-enrolled, unless their employer chooses to do so.  This includes (i) workers in a notice period within 6 weeks of their auto-enrolment date; (ii) workers who have left a qualifying scheme in the 12 months following membership (this is particularly helpful in situations where a worker is contractually enrolled but later chooses to leave the scheme); and (iii) workers with tax protection.

The aim of the auto enrolment regime was not to target workers with existing pension savings. So, workers with tax protection were never really within auto-enrolment’s target audience.  Although the onus will be on the worker to tell their employer if they have tax protection, the employer can rely on this exemption if it has ‘reasonable grounds’ to believe that the employee has tax protected status. There have been a number of comments relating to the burden this places on employers, and what employers need to do to establish this. Auto-enrolment communications and policy documents will need to be clear on this.

Our view is that the exemptions are sensible - having to auto-enrol in these circumstances goes against the intention of the auto-enrolment regime in the first place (not to mention the practicalities of doing so). Employers will need to work through the detail of the exemptions however, to ensure compliance. We can help with this.

Employers who do want to take advantage of the exemptions will need to ensure that their payroll and administrative processes are up to the job - so  there may be some bumps along the way to achieving the sought after “simplification”.

Other planned changes

The other changes covered by the consultation response relate to the quality tests for using defined benefit schemes for auto-enrolment (prompted by the ending of contracting-out in 2016), and auto-enrolment following the payment of a winding up lump sum. The Government has also confirmed that there will be no auto-enrolment exemption for workers who flexibly access their pension under the new defined contribution pension rules due to come into force in April this year.

It will be interesting to watch how these changes play out in practice.  Like many aspects of pensions just now, the intricacies of auto-enrolment are unlikely to stand still for a while yet.

Caroline Strathdee