Technical changes to automatic enrolment

Introduction

The DWP has published details of certain “Technical Changes to Automatic Enrolment”, to be made following a consultation earlier in 2013 (please see ourAlert dated 28 March 2013).

In this Alert:

• Key points 
• Background
  
• Pay reference periods
  
• DC qualifying schemes
  
• Contribution deadlines
  
• Joining window
  
• Registration
• DB quality requirements
  
• Issues for further consultation
  

Key points

• The changes are being introduced by The Automatic Enrolment (Miscellaneous Amendments) Regulations 2013.
• The changes either give employers more options or extend deadlines for existing AE processes, without changing the processes themselves.
• The majority of the changes will come into force on 1 November 2013.
• The changes to the joining window and registration deadlines are due to come into force on 1 April 2014.
• Some changes originally discussed in the March 2013 consultation will be subject to further consultation.

Background

AE began to be phased in from October 2012.  As more employers came within the scope of AE, the Government sought to respond to industry concerns relating to the complexity and timing of some of the AE processes.  The DWP consulted in spring 2013 on feedback that it had gathered with TPR, on early AE experiences.

Pay reference periods

Recognising that its original definition of pay reference periods – which was linked to the period by which an individual’s pay is calculated – could cause difficulties for payroll systems set up to work in line with PAYE and NICs, the DWP looked at ways to allow employers to align the AE pay reference period with tax periods.

From 1 November 2013, employers will have the option of using an alternative definition of pay reference period for AE assessment purposes.  This will allow the length of a pay reference period to be determined by reference to the usual interval between payments of a person’s wages and so be aligned with tax periods.  As the original definition will remain in place, employers who have already adapted their systems to the original definition of “pay reference period” will not need to make changes, unless they wish to do so.

Related changes include:

• the ability to define the length of a pay reference period by reference to pay frequency, to accommodate variable pay patterns; and
• provision to ensure that no pay reference will be less than a week, to avoid difficulties with part-period calculations.

DC qualifying schemes

For a DC scheme to be a “qualifying scheme” for AE purposes, a certain level of contributions must be paid within each pay reference period.  Apart from the initial period (which depends when a person first becomes an active member under AE), each subsequent pay reference period for this purpose is one year, starting with the anniversary of the employer’s staging date.  As there could be a risk of mismatch between contributions calculated and deducted from monthly/weekly pay and those calculated on an annual basis, new definitions for pay reference periods (described above) are being introduced, based on tax periods and pay periods, which will avoid the need for annual reconciliation.

Contribution deadlines

The deadline for passing contributions deducted from a jobholder’s pay to the pension scheme by the 19th or 22nd day of the month (the latter applies where payments are sent electronically) is extended at the outset of AE to allow employers to retain contributions until the possibility of a member opt-out has passed.  Initially this easement only applied to jobholders and contributions taken as part of the AE process (or ‘statutory’ enrolment).  However, in recognition of the fact that many individuals are enrolled by their contract of employment, the extended deadline will also apply to contributions deducted during the first two months of membership (irrespective of how enrolment is achieved).

Joining window

The joining window within which an employer has to achieve active membership for and issue enrolment information to a jobholder is being extended from one month to six weeks (including AE, re-enrolment and enrolment following opt-in).  This will give employers more time to complete the joining process and is aimed at preventing accidental non-compliance.

Registration

As a result of the changes to the joining window, the registration deadline (for informing TPR of the number of the number  of active pension scheme members, the number of people automatically enrolled, the number ineligible and the pension scheme(s) used) is to be extended from four to five months.   The re-registration deadline (following re-enrolment) is to be extended from one month to two.

DB quality requirements

For a DB scheme to be used for AE, it must satisfy the test scheme standard, including the entitlement to a pension commencing at the ‘appropriate age’ or a lump sum to provide benefits to be made available to a member commencing at the same ‘appropriate age’ (ie 65 or any higher age prescribed).

Certain technical changes are being made to ensure that the TSS requirements are consistent and work as intended.  In particular, the appropriate age is being directly linked to SPA.  The DWP notes that actuaries “will be able to take a pragmatic approach about the incrementally increasing SPA and use suitable approximations when determining whether the scheme passes” the TSS.

Issues for further consultation

A number of other AE elements are still up for consideration and will be the subject of further consultation.

The Government is looking into three situations where it may be appropriate to exclude certain categories of worker from the AE duty:

• individuals with enhanced or fixed tax protection;
• active members of DC schemes who have given notice of retirement; and
• people who hand in their notice during a deferral period;

The Government is also looking at ways to reduce the administrative burden on employers who use ‘contractual’ enrolment to enrol some or all of their workers into a qualifying scheme.  It is keen to “improve the fit between automatic enrolment and contract joining” and align the two processes.  It will therefore look further at some of the issues, including successive enrolments and the information requirements.

Simplification of the ways for determining whether DB schemes (including “defined ambition” schemes) are good enough to be AE qualifying schemes is also on the agenda.