New provisions come into force on 1 April which are intended to simplify the process of automatic enrolment. Although all employers with 50 or more employees should already have undertaken their initial automatic enrolment exercise, these changes will apply to ongoing enrolment and re-enrolment as well as to those smaller employers yet to reach their staging date.  

Excluded employees

Certain employees will be excluded from the employer duty to automatically enrol (modifying it into a power to enrol). Employers will not have to enrol the following, but retain the option to do so if they wish:

  • Those serving a notice period or where notice is given up to six weeks after the duty to enrol has arisen (i.e. during the joining window). This applies equally to resignation, dismissal or retirement. It does not apply to those on fixed-term contracts. 
  • Those who have left a qualifying scheme voluntarily within the last 12 months.
  • Individuals with tax protected status. They retain their right to opt in. The employer must have "reasonable grounds to believe the worker has tax protected status". HMRC will amend its guidance to make employees aware of the exemption and encourage them to tell their employer.
  • Individuals paid a winding-up lump sum and then re-employed (this quite a limited exception).

Simplified information requirements

The employer information requirements are simplified to have just three types of standard employer communications (which can go to all relevant workers):

  • one at staging date or new joiners;
  • one on postponement; and
  • one on re-enrolment.

Employers may continue to issue their existing communications if it is easier for them to do so. The Pensions Regulator is amending its guidance for employers and letter templates in line with the changes.

New DB quality requirement

There will be a new alternative quality requirement for DB schemes – the idea is to give broad equivalence to the current test scheme standard but in a simpler form. It is based on the cost of future accrual of active members' benefits which must be at least 10 per cent of qualifying earnings (or nine per cent if no dependants' benefits are provided). There are four variations of this test: 

  • total contributions of 11 per cent of pensionable earnings (where pensionable earnings are at least basic pay);
  • total contributions of 10 per cent of pensionable earnings, where pensionable earnings are at least 85 per cent of earnings;
  • total contributions of nine per cent of pensionable earnings where all earnings are pensionable; or
  • total contributions of 13 per cent of earnings above the basic state pension of the lower earnings limit.

Employers already using a DB scheme for automatic enrolment may find it more straightforward to certify compliance under the new alternative requirement, rather than on a test scheme basis. The DWP will be issuing updated guidance on this point.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.