UK: Auto-Enrolment Update – Case Law And Trigger Changes

Last Updated: 19 February 2016
Article by Elmer Doonan and James Borshell

Auto-enrolment update

Key points:

  • The Queen on the application of Fleet Maritime Services (Bermuda) Limited v. The Pensions Regulator [2015] EWHC 3744 confirms when peripatetic (basically "mobile") workers, who spend time outside the UK, are covered by an employer's auto-enrolment duties.
  • The new qualifying earnings band for auto-enrolment minimum contributions will apply from April 2016 and remains based on the national insurance upper and lower earnings limits. The trigger for auto-enrolment remains at last year's level of the equivalent of £10,000 per annum in any pay period. 
  • Looking forward, the increased minimum contribution requirements are moving to April 2018 and April 2019 to match the tax year, and we may have big pensions tax relief upheavals to look forward to in the next Budget.
  • Finally the DWP is introducing another set of limited changes to simplify auto-enrolment to take effect from April 2016.

Auto-enrolment has been through a bit of a rollercoaster of media attention. Currently interest is at a bit of a low ebb despite the efforts of Workie the Workplace Pension, who we have to admit to having a soft spot for, and occasional discussions on micro-employers and Regulator updates on its enforcement efforts. 

But, as with all things, auto-enrolment being out of sight does not mean that employers can put it out of their minds. This update sets out some standard statutory change information on triggers and qualifying bands and perhaps the first case on who is actually covered by the employer's auto-enrolment duties in a borderline case. 

The Queen on the application of Fleet Maritime Services (Bermuda) Limited v. The Pensions Regulator [2015] EWHC 3744

This case considered how the auto-enrolment employer duties apply to staff on cruise ships. The basic point of law is that the duties only apply to staff who work in Great Britain, or who ordinarily work in Great Britain (amongst other requirements). The basis of cruise ship employment is a journey from a port (which may or may not be in Great Britain), an extended period of work on the high seas, and then returning to port (which may be the same as the departure port, or not).

The question raised was whether someone who spends most of their tour outside of Great Britain can be said to be ordinarily working there. The Regulator took the view that they can, the employer that they could cannot. The court got to decide.

The court's decision can be summed up in a quote: 

"... a seafarer living in Great Britain, who spends most of their time in foreign waters, will ordinarily be working in Great Britain if they habitually join and leave the ship in Great Britain. However, a seafarer living in Great Britain, who spends most of their time in foreign waters, will not ordinarily be working in Great Britain if the ports where they join and leave the ship are outside Great Britain"

The decision itself is really only of interest to cruise ship operators and employers of other "peripatetic workers". However, the principles under which the court made its decision are very interesting. The court based its decision on the principles set out in Lawson v. Serco Ltd [2006] UKHL 3, [2006] ICR 250. This is an employment case considering whether employees could challenge their employers on grounds of unfair dismissal when they were based overseas. Thus the employment "base test" applies and in certain cases an employer may well have no base.

This case therefore confirms what we have suspected for a while. When faced with questions on the territoriality of the auto-enrolment obligations, the court is likely to approach things from an employment law basis. Given the fact that many of the same considerations apply, and the in-depth judicial consideration that has gone into this area of case law, this seems eminently reasonable. 

Triggers and earnings bands

As readers of a legal alerter on auto-enrolment will be all too aware, the employer duties are closely linked to a number of annually updated figures set out in legislation.

The first, which is not due to change for the coming year, is the earnings trigger for workers to be auto-enrolled. This has been frozen at the equivalent of £10,000 in any pay period. 

Qualifying earnings are what contributions need to be based on. These remain aligned to national insurance. For 2016/17 this means that minimum contributions would need to be paid on earnings between the equivalent of £5,824 and £43,000 per annum.

Simplification 2016!

Every year it seems the DWP is looking at blunting the sharp edges of auto-enrolment. This year's proposed 'simplification' will take in the following technical changes to the auto-enrolment requirements:

  • Exceptions from the requirement to auto-enrol/re-enrol  employees who also hold office as a company director, and members of Limited Liability Partnerships (see our Clyde & Co case alerter for some background see http://www.dentons.com/en/insights/alerts/2014/july/1/llp-members-not-whistling-in-the-dark-part-2.)
  • Clarification of when the requirement to auto-enrol/re-enrol does not apply where a member has received a winding up lump sum in the recent past.
  • Provisions to protect members with the new transitional pension savings protections when the annual allowance drops to £1m this year.
  • A simplified timescale for employers to notify the Regulator that they maintain an auto-enrolment pension scheme.
  • A simplified method for an employer to bring forward its staging date.

Consultation closes on 16 February 2016.

Future

Things to look forward to on auto-enrolment. 

In the Autumn Statement the Chancellor announced plans to move back the dates for the increases to minimum contribution requirements (basically minimum contribution 5 per cent, including a 2 per cent employer contribution, and then minimum contribution 8 per cent of which 3 per cent needs to be employer contribution), which had been due to come into effect on and from October 2017 and October 2018 respectively, to April 2018 and April 2019. This seems sensible, although it does mean a little less going into employee pension savings for those employers sticking to the letter of the law.

Then we have the potential upheaval in pensions tax. We will not go into that here as we have covered this in other places, but we wait with bated breath for the next Budget, where we will find out whether pensions in the UK (including auto-enrolment pensions) will need a bit of a tweak for flat rate tax relief, or whether we should all move into ISA advice toute suite.

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