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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.

Consultancy firm Lane Clark and Peacock this week warned an anomaly in pension legislation could allow 3,000 employers with staging dates in 2013 to implement auto-enrolment in 2017.

LCP said the loophole affects employers running hybrid pension schemes, which have both defined-benefit and defined-contribution elements.

Existing legislation allows a company with a hybrid scheme to defer auto-enrolment until 1 October 2017 for members who could have joined the scheme before their staging date but chose not to.

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

LCP principal Andy Cheseldine says: “This loophole appears to have remained unnoticed until now because of the sheer complexity of the legislation. We understand that primary legislation will be required to rectify this situation.”

A DWP spokesman 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.”

Hargreaves Lansdown pensions analyst Laith Khalaf says: “Given the complexity of pensions legislation it is not surprising there are still problems, even at this late stage.”

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