The Government has confirmed plans to significantly simplify the auto-enrolment process for employers as smaller firms approach their staging date.
A Department for Work and Pensions consultation published today sets out a number of changes to auto-enrolment legislation designed to make life easier for firms.
Under draft proposals, companies will no longer be legally bound to enrol employees who have accrued savings above the lifetime allowance and taken out enhanced or fixed protection. This comes after experts warned failing to introduce a carve-out could see wealthier workers hit with huge tax bills.
A similar exemption will also be granted in respect of:
- employees who have handed in their notice within six weeks of the employer reaching their staging date;
- contractually enrolled members who have quit the scheme within 12 months of their auto-enrolment date, and;
- those who have been paid winding up lump sums which prevent them receiving further pension accrual. In this case, any future contributions would make the WULS an unauthorised payment and potentially subject to significant HMRC tax penalties.
In addition, the DWP wants to reduce the amount of information employers are required to give to different types of employee from five to three.
The minimum level of information policymakers believe an employee should know are:
- if they are being enrolled into a qualifying scheme; and accordingly, will have an employer contribution and deductions taken (at which rates and into which scheme, including confirmation that tax relief will be given on employee contributions); that they can opt-out and how to do so, including knowing when the opt-out period is and confirmation that any contributions will be refunded;
- if they meet the necessary requirements that they can opt in or ask to join if they do not have qualifying earnings; and
- if they are being postponed, that their enrolment is being postponed and that they will be enrolled on a deferred date, but in the meantime, they can opt in or ask to join.
Finally, the Government has proposed a simplified test for defined benefit schemes to prove they are good enough for use under auto-enrolment.
Under this alternative requirement, a DB scheme would qualify for use under auto-enrolment if “the cost of providing the benefits accruing for, or in respect of, the relevant members over a relevant period would require contributions to be made of a total amount equal to at least a prescribed percentage of the members’ total relevant earnings over that period.”
Policymakers believe this method would be easier for employers than the current system, which uses a hypothetical “test” scheme to determine the value of members’ benefits.
The DWP will publish a response to the draft proposals in January and aims to legislate in April 2015.