This month the government issued a formal response to its consultation on amending the regulations that underpin workplace pension reform (WPR) Reform to the WPR regime has been enacted by the Automatic Enrolment (Miscellaneous Amendments) Regulations 2013 (the regulations).
Summary of changes that will apply from 1 November 2013
The regulations will amend existing secondary legislation with effect from 1 November 2013 so that:
- Employers can use an alternative definition of pay reference period based on tax periods for both assessing:
- an individual's jobholder status; and
- whether a scheme is a qualifying scheme.
- The easement to the Scheme Administration Regulations that extends the deadline for passing worker contributions to a pension scheme will apply to all new joiners. This means that it will be extended to apply to both entitled workers and individuals who join the scheme by way of contractual enrolment.
- It is clear that opt out notices do not have to be in exactly the same format as set out in the original regulations. As long as they set out the required information they can be customised.
- New provisions will apply in respect of the test scheme standard for defined benefit schemes. These are designed to bring greater 'clarity and consistency' on the requirements for defined benefit test schemes in relation to the appropriate age, service limits and revaluation that apply in those schemes.
Summary of changes that will apply from 1 April 2014
The regulations will amend existing secondary legislation with effect from 1 April 2014 so that the deadline for employers to provide:
- information to individuals on their opt in rights;
- information to individuals on their joining rights;
- postponement notices;
- the automatic enrolment joining window; and
- deadlines for registration are extended from one month to six weeks.
are extended from one month to six weeks.
The changes in more detail
Alternative definition of 'pay reference period' for assessing workers
An additional definition of 'pay reference period' is set out in the Regulations. The definition can be used by employers when assessing workers for the purposes of workplace pension reform (WPR). This new definition will operate alongside the previous definition so that employers will be able to choose which to apply.
The old definition of applicable pay reference period is set out in regulation 4 of the Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010 (the Automatic Enrolment Regulations). This definition is based on the period of time that the salary refers to e.g. if someone is paid for a week's work, the pay reference period will be one week.
The new definition is set out at regulation 5 of the regulations. Under the new definition, pay reference period can be determined by reference to the usual interval between an individual's wage or salary payments.
This means that if an employer pays two lots of weekly pay in a single fortnightly payment there are two possible pay reference periods:
- weekly - using the existing definition; or
- fortnightly - using the new definition.
Regulation 5 of the regulations goes on to specify when the first day of the pay reference period under the new definitions will be. For individuals who are paid weekly or monthly this will be the first day of the tax week or tax month respectively.
The new definition may be useful for those who are used to basing payroll on tax periods and for employers who operate variable pay patterns.
The government's decision to retain the old definition alongside the new definitions means that employers who have already designed administrative processes will not have to revisit these arrangements.
Alternative definition of 'pay reference period' for assessing scheme quality (i.e. minimum contributions)
The new definition of 'pay reference period' outlined above will also be available for employers to use when determining whether a scheme meets minimum contributions requirements.
The regulations maintain the existing annual 'pay reference period' for assessing scheme quality but also provide a second definition based on tax periods.
This means that employers choosing to use the new definition for assessing worker statuses under WPR will also be able to use the same tax period based pay reference period for determining contribution levels and scheme quality.
Deadlines for the payment of contributions
Under the original regulations, the government introduced an easement which gave employers an additional month to send the first batch of jobholder contributions to the pension scheme. Employers could use this easement to retain contributions until after the jobholders' opt out period had elapsed.
This was designed to minimise the movement of money and administrative burden on employers in respect of jobholders who opt out - employers could just refund their contributions from the retained fund.
The easement was not originally applicable to:
- entitled workers; or
- employees who were contractually enrolled.
Under the regulations, the easement will now apply to all new joiners regardless of their worker status or whether they were automatically or contractually enrolled. Employers will therefore be able to apply a 'retention fund' and hold on to contributions until they are sure that an individual is not opting out.
Deadlines for employer enrolment, postponement and information provision duties
The regulations set out various easements lengthening the amount of time employers have to:
- provide information on the right to opt-in (to non-eligible jobholders) or join (to entitled workers);
- issue postponement notices and
- complete enrolment of workers into automatic enrolment schemes
The deadlines will all be extended from one month to six weeks with effect from 1 April 2014.
Opt-out notices
Some people in the pensions industry were concerned that the current legislation prescribed both the content and the form of the opt-out notice. In the consultation, the government acknowledges that the intention was that certain information would have to be provided, but that the form and content of the opt-out notice was not rigidly prescribed.
The regulations make amendments to the legislation to make it clear that the government is 'less concerned about what an opt-out notice looks like' but is more concerned that it provides 'the minimum information necessary to inform an opt out decision'. The consultation makes clear that branding and additional information on pensions and saving can be incorporated on an opt-out notice.
Defined benefit test scheme standard
The test scheme standard is used to determine whether a defined benefit scheme meets minimum quality requirements to be used as a qualifying scheme under WPR.
The government has consulted on two technical aspects of the test scheme standard (the 'appropriate age' and the 'maximum service limit'). It has also asked a broader question as to the need for and design of quality tests for defined benefit schemes.
On the two technical aspects, the regulations amend the existing test scheme standard by making it clear that the:
- 'appropriate age' should be linked with the State Pension Age; and
- 'maximum service limit' will be retained at 40 years for the time being but will keep it under review for the future.
Possible future changes to WPR
The consultation considered some other changes to the WPR regime but decided not to go ahead with amendments to the legislation at this point. The areas looked at but not taken forward include:
- Excluding certain categories of worker from the automatic enrolment duty - the government considered excluding certain workers (e.g. those with lifetime allowance protections and workers who were working out notice) from the general automatic enrolment duty.
The government has decided to publish the results from the consultation and to issue a further consultation on this issue. No date for this has been announced at this stage. Employers should therefore apply the existing regime to all workers.
- Other easements for employers providing good pension schemes. The consultation considered whether there would be merit in providing easements for employers who go beyond the minimum required underWPR. This would potentially lighten their administrative burden and make offering better quality pensions more attractive.
The government has said it is keen to reduce employer's administrative burden and to align processes for contractual enrolment and automatic enrolment. It will explore these issues with interested stakeholders in the coming months.
- Simplification of defined benefit certification - the consultation considered whether employers offering defined benefit pension schemes needed to apply a quality test and whether a quality test could be simplified.
The government has responded that it is keen to work with interested stakeholders to explore possible methods for simplifying the certification regime for defined benefit schemes.