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Govt considers lifetime allowance auto-enrolment exemption

Steve Webb 480 LibDems DWP

The Government is considering removing the requirement for employers to automatically enrol people who have lifetime allowance protections in place.

The idea will be floated in a consultation next month outlining ways to simplify auto-enrolment rules for employers.

It follows warnings from the industry in July 2011 that people who have lifetime allowance ‘fixed protection’ could face huge tax bills if they are accidentally enrolled into a pension scheme.

This is because their fixed protection will be void if they make any additional contributions. If this happens, any pension savings above the lifetime allowance would be taxed at 55 per cent.

At the time, Hargreaves Lansdown head of pensions research Tom McPhail said these people should be allowed to permanently opt-out of auto-enrolment, rather than being re-enrolled after three years.

Pensions minister Steve Webb says: “We’ve been listening to the experience of employers that have enrolled their workforce so far and recognise that some parts of the process could be improved.

“By consulting on these changes we can address this before automatic enrolment is rolled out to small and medium sized businesses.

“We don’t want to make changes to legislation lightly but do we want to make sure that automatic enrolment is working as well as possible.”

The Government is also looking at ways to make assessment of the eligibility of the workforce for auto-enrolment easier and making it easier for defined-contribution schemes to show they meet scheme quality requirements.

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. What a fantastic idea, just in case employers were finding it easy to segment their staff by way of informtion that thy do actally hold somewhere why not introduce an exempltion based on infromation that an employer doesnt have!

  2. Oh – Didn’t Steve (make it up as we go along) think of this before then? Govt only warned about this problem in 2011 by the pension industry, but lets wait and hear the ‘experience’ of employers who have started auto-enrolment.

  3. What do we expect when unelected officials, untrained in pension planning instigate a scheme whereby instead of increasing NI contributions and allocating it automatically to an additional pension, they set up a system so complex and which is a minefield for future mis selling complaints if advisers get involved in assisting firms to implement this daft scheme, one wonders what the motive behind it is, better retirement income is not going to come from this very expensive scheme whose setting up costs dwarf those of existing PPs and which offers no flexibility for transfers to other providers.

    Daft, Daft and Dafter – a good name for these people.

  4. And they want the advice for free. Unintended consequence LT allowance exceeded and an upheld compensation claim for the whole loss!!

  5. …or the easier solution, scrap the LTA and just keep the annual allowance…. which would require no effort from anyone other than Government and HMRC and means that the problem is removed. It also circumnavigates the problem of Pension Transfer qualification requirement to advise anyone to opt out… including AE….

  6. The legislation is now in force and yet there continues to be tinkering (perhaps an understatement!)

    As Steve says, employers may well be oblivious to this (as well may some individuals who it affects).

    All of this leads to a need for advice and as the poster at 4:44pm says, it’s being suggested in some quarters this advice should be ‘free’.

    Brilliant!

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