Out-Law News 3 min. read

Auto-enrolment simplification welcome but burdens on companies should be further reduced, says expert


Moves to simplify the UK's auto-enrolment pensions framework are welcome, but the government's planned changes do not go far enough to ease compliance burdens on businesses, an expert has said.

Pensions expert Tom Barton of Pinsent Masons, the law firm behind Out-Law.com, was commenting after the Department for Work and Pensions (DWP) set out proposed technical amendments to auto-enrolment rules (17-page / 87KB PDF). DWP is consulting on the changes up until 16 February and plans for the draft new regulations (5-page / 47KB PDF) to come into force on 6 April.

Under the 2008 Pensions Act, employers are under a legal duty to automatically enrol all workers who are "working or ordinarily [work] in Great Britain under the worker's contract" into a pension scheme which meets certain minimum requirements. They are then legally obliged to make contributions towards the pensions of those that do not opt out, and to 're-enrol' those who do opt out once every three years.

Since the auto-enrolment framework was first set there have been a number of amendments made to the way it works. In its latest proposals, the government has identified other groups of individuals within companies that employers will not have to automatically enrol onto company pension schemes.

Under its plans the employer duty to auto-enrol staff would no longer apply to company directors and "genuine partners in Limited Liability Partnerships". Those staff would have the right to opt-in to pension schemes set up by companies under their auto-enrolment duties.

Other planned changes would update the auto-enrolment rules to allow employers to exclude workers that benefit from "transitional protection rights for their pension savings under HMRC legislation" from their auto-enrolment programme.

"This will also help prevent the risk of individuals being subjected to substantial tax charges should they fail to opt out," DWP said.

The government also said that it plans to apply a single date on "the re-declaration of compliance" employers are required to make under the auto-enrolment regime. This change is to address the existing possibility that employers "may miss their re-declaration deadline if it turns out they have no one to re-enrol", it said.

"There are currently two deadlines in law for re-declaration of compliance," DWP said. "One for employers who have no one to re-enrol, and a different one for those employers who do. Where employers have eligible staff to automatically re-enrol, they must complete the re-declaration of compliance within two months of their selected re-enrolment date. Any employer with no-one to re-enrol currently still has a re-declaration deadline (set as the day before the third anniversary of their original declaration of compliance)."

"We have received feedback from interested stakeholders indicating that these existing requirements are confusing for employers. We therefore think there is a strong case to provide one re-declaration deadline date for all employers and remove declaration requirements for those employers who have no one to re-enrol at their reenrolment date. Thus simplifying the process and removing an administrative burden for employers," it said.

Among the other changes planned are amendments that would impact on employers that operate defined benefit (DB) pension schemes and "satisfy the contracting out conditions" under existing rules.

The ability to 'contract-out' employees from the scope of the auto-enrolment regime is to be abolished from 6 April. However, DWP said it intends to give some flexibility to employers operating DB schemes over how they demonstrate that their schemes comply with the "quality requirements" specified within the auto-enrolment rules.

"These planned changes are all very well intentioned and takes us further down a path of simplifying what was always an overly prescriptive set of regulations," Barton said. "This is a good thing. The administration burden is greater than it could, or should, be. However, ideally a simpler regime would be even simpler than that set out in the draft regulations."

"For example, it is proposed that directors and LLP partners can be excluded from automatic enrolment but retain a right to opt-in. Why? These sorts of individuals are generally in a position to have a sensible conversation about pensions – or make their own provision privately," he said.

"It also doesn’t address the big problem for employers in trying to align payroll reality to legislative requirements. Compliance is not easy. It should be easier to live with embedded process and procedure which pose no threat at all to policy objectives," Barton said.

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