Out-Law News 1 min. read
20 Dec 2012, 2:53 pm
Pensions Minister Steve Webb said that the Pensions Act 2008 would be amended to prevent ‘hybrid’ pension schemes deferring enrolment for members building up a pension on a defined contribution (DC) basis. Hybrid schemes are those which offer both DC and DB benefits, although some members may just have access to DC benefits.
"The Government is acting to put beyond doubt its intention that people with access solely to a DC pension do not have their auto-enrolment deferred, even if they are in a hybrid scheme," the Department of Work and Pensions (DWP) said.
"An amendment to the Pensions Act 2008 will tighten the rules, ensuring that only employers offering DB to a jobholder - whether in a DB or hybrid scheme - will be able to defer auto-enrolment until 2017. Under the change, all eligible jobholders who do not have access to DB must be auto-enrolled from their staging date."
Last month, pensions consultancy Lane Clark and Peacock (LCP) said that up to four million workers could have been affected by the provision, which was intended to allow employers to wait if pension scheme members had a choice between DB and DC benefits. LCP warned that the legislation had been drafted so broadly that any employer operating a hybrid scheme would be able to defer, even those schemes which only offered DC benefits to new members while continuing to offer DB benefits to existing members.
DB schemes, which promise a set level of pension once an employee reaches retirement age no matter what happens to the stock market or the value of the pension investment, typically provide more generous benefits than DC schemes, where the final value of an employee's pension 'pot' depends on the performance of their individual contributions.
The largest employers, such as banks and supermarkets, began automatically enrolling eligible workers into a suitable workplace pension scheme on 1 October this year. Smaller employers are due to follow in a staggered implementation, with 'staging dates' running until April 2017. By the end of 2013, all companies with 500 employees or more will have begun automatic enrolment.
Once the process begins, employers will be legally obliged to make contributions towards the pensions of automatically enrolled workers who do not opt out of the scheme. Between six and nine million of the 11 million people expected to be eligible for auto-enrolment will be new savers or saving more than before, according to Government estimates.
"It vital that firms comply with the spirit as well as the letter of the law," Webb said. "I'm sending out a clear message that all workers should be allowed to save for their retirement as soon as possible."
