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 will be taxed at 55 per cent.
Pensions minister Steve Webb says: “We have 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.”
The Government is also looking at how to make assessment of the eligibility of the workforce for auto-enrolment easier and making it simpler for defined-contribution schemes to show they meet scheme quality requirements.
Hargreaves Lansdown head of advice Danny Cox says: “If someone with fixed protection is auto-enrolled it would almost certainly have been done by mistake, so removing them from the process makes sense.”