Compensation & Benefits: Update on proposed auto-enrolment pension reforms
“Pragmatic approach” welcomed as “major step forward”
Following the Department for Work and Pensions’ (“DWP”) consultation exercise in September 2009, key changes have been made to the draft regulations initially published. The revised regulations relate to employers duties set out in the Pensions Act 2008 and were laid before Parliament on 12 January 2010. The regulations will introduce a requirement for all employers to automatically enrol workers and pay contributions into their workers’ pension schemes.
The amendments have been made in accordance with the DWP’s stated aim to establish a “minimum level of effective regulation without over specifying process steps” and are set out below:
- the overall period for the staging process designed to bring employers within the scope of the reforms (month by month according to their size) has been extended from 3 to 4 years. Employers will be staged according to their size up until 1 September 2016. Staging for large employers, with more than 120,000 employees, will begin in October 2012, with staging for new and small businesses being delayed until later in the period;
- a second transitional period which will trigger further increases in employers’ and employees’ contributions has been deferred to 2017;
- following responses to the DWP’s consultation, the proposed rules to allow employers to self-certify their compliance with the required quality standards for defined contribution schemes have been withdrawn for the moment.
Auto-enrolment will begin as planned in October 2012 and will be fully phased in by October 2017.
New and smaller businesses will welcome the additional time allowed before they are required to auto-enrol their employees into a pension scheme.
However, employers operating defined contribution pension schemes will be disappointed to note the withdrawal of the self-certification rules. The DWP has explained that it is currently seeking a long term solution in conjunction with the pension industry but, unless a replacement self-certification mechanism is proposed by the DWP, employers with such schemes will be subjected to increased costs and additional administrative burdens as a result of having to undertake a full reconciliation of their records each year with the statutory quality standard for these schemes.
The main regulations are set out below. For details of the other regulations, please visit: http://www.dwp.gov.uk/policy/pensions-reform/latest-news