What with all the pensions freedoms and budget announcements of the last few weeks, you may have missed the announcement that will be of importance to all UK employers – and that is the Technical Changes to Automatic Enrolment document published last month by the DWP.
The above item was the formal government response to a consultation document which focused on some small changes that might make the entire process of automatic enrolment both more logical and less onerous. The changes in question came into force on 1 April this year.
One of the best summaries of the changes is from The Pensions Regulator (TPR), which although aimed at software providers (rather than employers) does make it clear where alterations to the regulations have been made.
The two items of everyday value for most employers are the following:
- Where an employee has given notice (or been given notice) to end their employment, it is no longer mandatory to include that employee in any new automatic enrolment process.
- If the employer has reasonable grounds to believe that the employee has primary, enhanced or fixed protection on pension savings under HMRC rules then the auto enrolment duty does not apply.
The protections mentioned in point two above are not well known to many employers, and largely date from 2006 when new rules were introduced (under Pensions Simplification). Employees who have opted for the above will benefit from tax protected status on their retirement savings, but some may lose this advantage if they commence pension savings again. Auto enrolment for this grouping was therefore problematic.
This has now been recognised. Yet this is only part of the issue, as employers are unlikely to actually know that a worker has such a protection in place. The onus is therefore on th1e employee to provide the employer with the HMRC certificate of protection to demonstrate the ‘reasonable grounds’ required by the employer to waive this duty.
So this is a bit chicken and egg. The employee won’t know to provide the evidence to the employer, and the employer won’t know which employees to ask for such evidence. So perhaps a general announcement to employees on this issue would be prudent? At least by following this route the employer has done what they can to establish if any employee will be overtly disadvantaged as a result of being automatically enrolled.
One final point here, the reduced lifetime allowance recently announced is likely to lead to another tranche of pension protections over the next year. It is to be expected that these will also feature within this new exemption, but we will have to wait for more information before we can comment further on this point.