Employers will no longer have to automatically enrol employees in certain situations due to changes under government draft legislation.
Exceptions will be introduced so employers are not required to auto-enrol individuals who are leaving employment, staff who cancel membership of a pension scheme before automatic-enrolment and those with tax-protected status for existing pension savings.
The changes were outlined in the government’s response to the consultation Technical Changes to Automatic Enrolment, published in March.
Employees leaving employment
Employers will be able to stop the enrolment process for employees leaving employment and are in a notice period after the auto-enrolment duty has arisen.
Affected individuals would not be able to opt in to a qualifying scheme or join a pension scheme. But if the notice were withdrawn, the automatic-enrolment duty would start to apply again from the date of the withdrawal.
Cancelling membership of a scheme prior to auto-enrolment
Under current rules, if a contractually enrolled employee then cancels their pension scheme membership, they currently need to be automatically enrolled under the statutory process on becoming an eligible jobholder.
The government has now clarified provisions so it is clear that where an employee cancels membership of a qualifying scheme, during the 12-month period following that event, the employer has a discretion to enrol or re-enrol the worker.
After that 12-month period, the duty to enrol is lifted until the next automatic re-enrolment date. The 12-month rule, therefore, also applies where an employee cancels membership within 12 months of automatic re-enrolment.
Accordingly, if the employer staged during or after the 12-month period following an employee’s cancellation of his or her membership, there would be no duty to automatically enrol that member of staff until the next cyclical re-enrolment date.
Individuals with tax-protected status
Individuals with pension savings above the current lifetime allowance may be protected from tax charges under enhanced or fixed protection. Such protections can be lost if an individual is automatically enrolled into pension saving. To avoid losing their tax protection, affected individuals currently need to opt out within the statutory timeframe to prevent adverse tax consequences.
The change gives employees an exemption to not be auto-enrolled where sufficient evidence of tax-protected status applied. For example, a certificate from HM Revenue and Customs (HMRC) will be required demonstrating the employee’s status to be sufficient for the employer to apply reasonable grounds for the exemption.
The onus would be on the employee to keep their employer informed.
But the employer will still have the power to enrol all eligible employees regardless of whether or not those employees have tax-protected status, if it is easier and more cost effective for them to do so.
HMRC and The Pensions Regulator’s guidance will be amended for this change in legislation.
Government will also introduce a rule that allows them to modify any of the enrolment or joining processes and turn the duties back on if the circumstances that triggered the exception come to an end.