DWP to address auto-enrolment ‘hybrid’ loophole

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The Government has pledged to address an automatic-enrolment “loophole” which could see 3,000 employers with 4 million employees delay implementation of the changes by four years.

Earlier today, consultancy firm Lane Clark and Peacock said any employer with a ‘hybrid’ pension arrangement – a scheme with both defined-benefit and defined-contribution elements – can defer auto-enrolment until 1 October 2017 for members who could have joined the scheme before their staging date but chose not to.

LCP said the drafting of the legislation allows employers who run hybrid schemes but only offer DC benefits to new entrants to delay auto-enrolment.

It said the loophole could allow 3,000 employers with 4 million employees who were due to begin auto-enrolment in 2013 to push back implementation of the reforms by four years.

A DWP spokesman says this is not the intention of the legislation and the issue is being investigated.

He says: “We are grateful to LCP for bringing this to our attention and are looking at the issue. Our intention remains that transitional arrangements only apply to employers who automatically enrol their existing workforce into the hybrid or defined benefit element of their pension scheme.

“In addition, all new members of staff joining these firms after their staging date will be automatically enrolled – and existing staff can still choose to opt in.”