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Friday, 31 October 2014

    Trustee briefing: Updated auto-enrolment guidance

    Engaged Investor explains the ins and outs of the latest auto-enrolment guidance

    WHAT HAPPENED?

    The Pensions Regulator and Department for Work and Pensions (DWP) have confirmed a substantive chunk of the remaining details of the auto-enrolment process. The information has mainly been targeted at employers, but it is helpful for trustees to be familiar with the information.

    The Regulator has issued:

    • Revised staging dates for small and medium-sized companies
    • Detailed guidance for pensions advisers on the auto-enrolment process

     

    The DWP has issued:

    • Amended auto-enrolment regulations following its consultation with the pensions industry

     

    Revised staging dates

    The Regulator splits companies into two bands: larger employers (employing over 250 people) and smaller employers (with fewer than 250).

    Small businesses – those employing fewer than 50 people – will see their staging date delayed until June 2015 at the earliest, with very small businesses (with fewer than 30 employees) expected to auto-enrol their employees in 2016.  

    Staging dates will be unaffected for large employers, while mid-sized companies have been given staging dates between 2012 and 2014.

    Staging dates for individual companies will be set on 1st April 2012, based on the numbers of individuals each company employs on that date. A full list of staging dates is available here.

    The DWP’s response on auto-enrolment regulations

    The DWP also issued the response to its 2011 consultation on how to make auto-enrolment work. 

    As a result of the consultation, the DWP has announced revisions to its proposed auto-enrolment regulations. The first important change is the introduction of an optional waiting period of one month before an employer has to automatically enrol a jobholder. Originally, the DWP had proposed waiting periods of one week, but this was thought inadequate by the industry.

    The second significant change is to the certification process, which the DWP intends to simplify. The DWP defines certification as “an administrative easement for employers who calculate their pension contributions from the first pound, rather than on qualifying earnings”.  The certification period will be extended from 12 to 18 months.

    Seafarers and offshore workers will be eligible for auto-enrolment when they ordinarily work in the UK.  This will be subject to the DWP’s “ordinarily working in the United Kingdom” test. “We recognise the importance of assisting employers of seafarers in identifying which members of their workforce should be automatically enrolled”, the DWP said in its advice. The Secretary of State will review the existing provisions for seafarers and offshore workers in 2018.

     The Regulator’s detailed guidance for employers

    The Regulator’s guidance has been updated as a result of the Pensions Act 2011 and outlines the key steps that employers and trustees should take to ensure they comply with auto-enrolment in time for their staging date. It offers some key definitions: what is meant by ‘worker’, how to identify the different categories of worker, and what the new duties are in relation to each category of worker, for example.

    As the Regulator says, many employers may find their pension scheme already meets the criteria for auto-enrolment. Therefore, a useful starting point is the Regulator’s seven steps to prepare for automatic enrolment, which can act as a checklist.

    The guidance also includes case studies of best practice in a variety of situations: for example, how employers and trustees should monitor age and earnings in order to ensure that they are correctly auto-enrolling all employees who meet the regime’s criteria.

    What does this mean for trustees?

    • Trustees have a vital role to play in auto-enrolment, supporting their scheme sponsor and ensuring they have a compliant scheme in place in time to meet their staging date.

     

    What next? Action points

    • As a trustee, you should make sure you know your scheme’s staging date. Make sure you have a plan for auto-enrolment. Speak to your advisers to ascertain whether your scheme is already auto-enrolment compliant, and if not, the steps you need to take to ensure compliance.
    • If in doubt, check The Pensions Regulator’s website, or contact them for specific guidance.

     

    The DWP will publish further consultations to confirm the final details of the auto-enrolment regime. According to the DWP’s response on auto-enrolment regulations, these will include:

    • A consultation to inform the review of the earnings trigger and qualifying earnings band which was published in December 2011 and closed on 26th January;
    • A consultation setting out how the Government proposes to use the power included in the Pensions Act 2011 to exclude certain cross border employment from the automatic enrolment duty;
    • Detailed proposals including draft regulations setting out how the Government will implement the commitment that no small employer would be required to automatically enrol its workers before May 2015.

     

    The Regulator will update its guidance for employers and trustees “when the revised figures for the lower level of qualifying earnings and the earnings trigger for automatic enrolment are published”.

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