Regulation changes, effective 1 April 2015

By Louise Mulgrew | 20th March 2015 | 17 min read

Following a consultation, the Department for Work and Pensions (DWP) have issued permissive changes to regulations in regards to pensions. The new legislation aims to reduce overheads for businesses and overall reduce the impact that auto enrolment; the workplace pension reform; has when implemented by a business or organisation. 

The new regulation updates are permissive, this means that businesses may adopt them if it is cheaper and more efficient to do so but other businesses may find that it is more beneficial to them to continue with their current processes.

This is all in the attempt to make auto enrolment easier for businesses and the relaxation of enforcement of the new regulations will mean that businesses can avoid lengthy changes to any existing processes that may in actual fact not be as beneficial to them in the first place.

It should also be taken into consideration that because these new laws come into effect as of 1st April, there is still time for them to be amended, should the DWP see reason to do so.

So what are the new regulations?

There are changes to the exceptions of workers:

1) Who are in a notice period

For those who have given notice or have been given notice of leave of work either before or up to six weeks following an employer's staging date (or re-enrolment date), the employer may choose whether to auto enrol that employee or not.

2) Who have ceased active membership of a qualifying pension scheme

For workers that have contractually joined a pension scheme and then later decided to leave that scheme or for those workers that were auto enrolled in the first instance, to then opt out, that fit into the following category:

They cancelled their membership of the scheme up to 12 months before staging or re-enrolment. If they fit this criteria, the employer may choose whether or not to auto enrol the employee into a pension scheme. It must be noted that the employer then does not have to enrol that employee into a pension scheme until the next cyclical re-enrolment date.

3) With HMRC tax protected status for their pension savings

If the employee can prove beyond reasonable grounds (I.e. With documentation) that they are of a tax protected status for their pension savings then the employer may choose not to auto enrol that employee. This is because being auto enrolled into a pension scheme may remove the tax protected rights if they do not opt out in time. If the employer doesn't auto enrol the employee, that employee does have a right to opt in, should they choose to do so. (Applies to staging date and re-enrolment)

4) Who have received a winding-up lump sum payment

For those workers who have taken a Wind Up Lump Sum (WULS) of a Defined Contribution (DC) scheme and have subsequently left the business, and then re-joined the same business, the employer has a choice whether to auto enrol the employee or not if their staging date falls up to 12 months after the WULS has been paid to the employee. Otherwise, they can wait until the re-enrolment date.

Changes to communications

There are changes to the way that the employer communicates auto enrolment to employees. However, these changes are also permissive and can be adopted if it is cheaper and more efficient to do so.

From the 1st April, there are only 4 instances where employees must now be contacted:

  • When workers have been enrolled
  • When a business is using postponement (one letter)
  • To inform that workers have a right to opt in / join a scheme, and
  • when applying the transitional period.

These new regulations change the requirement to give separate opt in and joining information should the worker's category change, which means that the employer can now combine this information. Practically, the employer no longer needs to monitor when a worker changes from an entitled worker to a job holder (or vice versa) because the relevant information on opting in and joining is given at the beginning of the auto enrolment process.

This change also simplifies the assessment process further by which the employer only needs to identify two different groups in their workforce; those who must be auto enrolled and those who don't.

Letter templates will also subsequently change as a result of this and as of 1 April, the old templates will no longer be available from the TPR website. You can request these, should you need them, though.

Contracting out will be abolished in April 2016 which means that new quality tests are required for Defined Benefit (DB) schemes. As of April 2015, in addition to the existing test standard, an alternative will be that a DB scheme will be able to meet new alternative requirements set out in the new regulations. These requirements will be simpler and will be based on contribution rates and the cost of providing benefits for the members.

A perfect time to change?

As in our previous blog post, some of our existing payroll software clients that took on a piece of middleware to run their auto enrolment assessment and communications. They were under the impression that this service would be free on an ongoing basis however were stung with a hefty invoice to continue using the service into the second and third year.

The regulation updates are permissive, which means that they are advised but not compulsory. However, they are advised for a reason: it makes things easier, more streamlined and reduces the overheads associated with auto enrolment.

IRIS endeavour to always provide knowledge and information regarding legislative and regulation changes. Our clients can always be assured that if there were to be any updates, our payroll software and solutions will be updated to reflect this. In the meantime, IRIS provide courses on legislation which will always be the most up to date and is a great way for you to improve your knowledge around any changes and how they could affect your business.

Find out more about IRIS Training