PENSIONS – AUTOMATIC ENROLMENT/AUTOMATIC ENROLMENT
Synopsis: The Government has published their response to March 2013 consultation on proposed technical changes to AE processing.
Date posted: Wednesday, February 19, 2014
Our previous bulletin detailed the Automatic Enrolment Technical Changes consultation document. The Government has now published their response to the consultation and more specifically the exemption of certain categories of workers from the scope of AE.
The following categories were consulted on:
Tax Protected Status
The government has confirmed that there are practical problems with making an exception for those individuals with Protection – the onus is on the employer ‘to know’ who has a valid election for Protection. The current legal framework does not permit any exception under AE and the government has said it’s an issue for each individual to resolve with their employer.
Jobholders leaving employment
Further consideration will be given to a definition of leavers as the government confirms enrolling workers that are imminently due to leave employment is an unnecessary administrative burden of AE.
Notice of Retirement
The government will develop proposals for an exclusion for those whose enrolment date is within their notice period of retirement.
The other scenarios that were raised in the consultation for example, workers who have reached maximum pension accrual and members in receipt of other benefits from an employer’s scheme will be dealt with by the opt out system and no special requirements will be drawn up in favour of these groups of workers.
Currently, if an employer offers a contractual enrolment scheme and an individual chooses to cancel their membership, they may still need to be auto enrolled when they become an eligible jobholder even if they only left the pension scheme very recently. The government classed this as an unnecessary administrative burden and draft regulations will be issued for consultation.
Serious Ill health
Workers absent from work because of long term sickness it was felt should not be excluded from the AE requirements because the employer may not know when the worker will return to work and may interfere with survivors’ rights.
Non UK residents
Although not a new problem, there are regulatory barriers for pension providers entering the AE market with products for non UK residents. Providers must have the correct permissions (Distant Marketing Directive [DMD]) to deal to non UK residents, in their country of residence. It may therefore cause administrative issues for employers who may need to establish two AE pension schemes in order to comply with the AE requirements of enrolling all eligible workers who may or may not be resident in the UK.
The government’s response is that it’s down to the product providers to sort out. The provider can still decline to write the business. Employers do still have the option to use an occupational pension scheme which does not suffer the same DMD issues as personal pensions.
Jobholders – definition of worker
There will be no changes to the definition of workers to exclude non-executive directors if they have a workers contract. There will also be no change to the AE requirements for students.
Jobholders – treatment of earnings
Some respondents of the consultation wanted an exclusion for the very low paid workers who were automatically enrolled due to an annual pay spike. There was also a call for a higher earnings limit – £100,000 pa.
The government confirmed that in the original draft AE regulations there was provision to carve out the very low paid but it was removed before enacted as legislation as it was deemed too complicated. There are no plans to revisit this or impose an exclusion on high earners.
New starters, short term & casual hires
The government will not exclude any of these groups of workers and confirms that postponement can be used to offset the impact of temporary workforce spikes. They will review the information requirements of using postponement as some respondents deemed this overly burdensome.
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