UK: Automatic Enrolment: Forthcoming Improvements

Last Updated: 19 December 2013
Article by Anne-Marie Winton and Judith Clixby

Changes to the automatic enrolment (AE) requirements come into effect in November and April. These are intended to simplify the automatic enrolment process ahead of the roll-out of automatic enrolment to medium and small employers from April 2014. There have been some refinements to the proposals made in the DWP's March consultation in the light of responses it received. All changes come into effect on 1 November 2013 except those under the heading "Joining window", which come into effect on 1 April 2014.

New alternative definition of pay reference period for assessing AE requirements

This is relevant to assessing whether a person's earnings bring him within the scope of automatic enrolment. A new definition of pay reference period (PRP) is introduced alongside the existing one. Employers can therefore choose the one which works best for them. The current definition links the PRP to the period by reference to which a person is paid (e.g. one week for a person paid by reference to a period of a week), but this does not work well for most payroll systems, which are linked to tax periods, paydays and pay frequency. It also poses problems for employers operating variable pay patterns (e.g. 4/4/5, where jobholders are paid four weeks' pay on some pay days and five weeks' pay on others).

The new alternative definition is designed to overcome these problems: the length of a PRP is equal to the 'usual interval' between payments of the person's regular wage or salary (being not less than one week) and it commences on the first day of a tax week or tax month.

New alternative definitions of pay reference period for assessing DC scheme quality requirements

The quality requirement for a DC scheme is based on the amount of employer contributions paid in the PRP. Employers will be able to choose from three definitions. A PRP can be:

  • a period of a year, ending on the day before an anniversary of the employer's staging date (the current definition);
  • the usual interval between payments of regular wage or salary (as above); or
  • the same length as the period by reference to which a person is paid.

Contribution payment deadlines

Employers currently have a longer period to pay to the scheme employee contributions deducted during the opt-out period than the usual 19/22 days after the month in which the contribution was deducted. This easement will now be further extended (even further than was proposed in the consultation):

  • All contributions deducted during the first three months of membership will have to reach the scheme by the 19th/22nd day of the fourth month.
  • This will apply to contributions from all new members, whether automatically enrolled, opting in or being contractually enrolled.

Opt-out notices

For the purposes of greater flexibility, the specimen form of opt-out notice set out in a schedule to regulations is being replaced by a number of statements which an opt-out notice must include as a minimum. It is confirmed that opt-out notices can also include supplementary information and branding, which should enable them to be more member-friendly.

The consultation response states that this was always the policy intention but the wording of the regulations was more restrictive. Given the confusion this may have caused, the new regulations validate any opt-out notices which an employer has accepted as valid before 1 November 2013.

Joining window

From 1 April 2014 this is to be extended from one month to six weeks. Consequential changes are made to various deadlines, including:

  • issuing enrolment information, jobholder information and information about opting out and opting in;
  • the postponement process; and
  • registration and re-registration with the Pensions Regulator.

Contractual enrolment and DB quality requirement: no changes at present

Contractual enrolment

The consultation sought to simplify the AE regime for employers operating "contractual enrolment", i.e. enrolling all workers into a qualifying scheme, often before the staging date and usually obtaining their consent to deduction of pension contributions via the employment contract. Because pension scheme membership cannot be a condition of employment, workers are given an option to cancel membership and receive a refund, but there are two drawbacks:

  • they must be automatically enrolled when they become eligible jobholders for the first time, however recent the cancellation; and
  • employers continue to be subject to the Pensions Act 2008 duties, e.g. monitoring and assessing the workforce against the jobholder eligibility criteria and notifying jobholders of their status at the appropriate times.

It had been hoped to overcome these requirements by permitting employers to self-certify, but the Government has concluded that this is not currently possible. Not only would its proposals complicate the enrolment process and increase the monitoring burden but the AE legislation does not allow such changes to be made by regulations. It will consider whether changes can be made under the current Pensions Bill and will consult in due course.

DB quality requirement

This is currently based on the test scheme standard for contracted-out schemes. As DB contracting-out is to end in April 2016, the consultation asked whether a replacement test scheme standard was needed and, if so, what it should be. No conclusions have yet been reached. The Government "is keen to work with... interested stakeholders".

Further reading

Click here for the Government consultation response.

Click here for the April issue of Pensions update, which reported on the consultation, Technical Changes to Automatic Enrolment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Anne-Marie Winton
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