Automatic enrolment review: Sackers’ Response

Background

The main purpose of the DWP’s consultation on “Workplace Pension Reform – Completing the legislative framework for Automatic Enrolment”, published on 19 July 2011, is to put into effect the findings of the independent review “Making Auto-Enrolment Work” (the Review), which was published in October 2010.

We support the Government’s efforts to introduce easements aimed at simplifying various aspects of the auto-enrolment process.

In this response:

• Waiting periods
  
• Certification
  
• Draft guidance
  

Waiting periods

The Review recommended the introduction of an optional waiting period of up to three months before an employer has to automatically enrol a jobholder, with the aim of minimising the administrative burden for employers.  In the light of this, the consultation suggests a notice period of one week, from the day following the starting day, as the prescribed deadline for employers to inform jobholders of their intention to use such a waiting period.

It is difficult to argue with the logic of keeping this period short, giving jobholders the chance to opt-in as soon as they receive the notice.    However, in practice, a one week notice period may be difficult for some employers to achieve.

The consultation also proposes the use of a second waiting period, after the initial waiting period has been applied following the employer’s staging date, to allow an employer to align automatic enrolment with existing processes if this has not already been achieved through the first waiting period.  This is helpful and employers may wish to take advantage of it.

If the option of a second waiting period is to be made available, again it may be difficult for some employers to achieve a one week waiting period.

Although the consultation and draft regulations do not cater for opt-in, we note from page 25 that it is the intention that opt-in is to be “effective from the first day of the next pay reference period following the date an employer receives a completed opt-in form from an employee”.  This suggests that contributions (employer and employee) are to be payable in respect of a jobholder who opts-in during a waiting period.  If this is the intention, regulations and guidance should make this clear.

Certification

We welcome the DWP’s efforts to simplify the certification process with a view to assisting the many employers who calculate pension contributions from the first pound rather than on qualifying earnings.

However, difficulties remain for employers for whom a significant proportion of pension contributions can be based on bonuses or other fluctuating emoluments.  We anticipate this to be an area where existing schemes may need further guidance.

We agree that the 12 month period for certification is reasonable.

Draft guidance

We welcome the draft guidance which is helpful, particularly where practical examples are outlined, as well as the tables which illustrate which individuals need to be included or excluded from a certificate.

It appears that the terms “renewal” and “recertification” are used interchangeably.  Where possible, one term should be used, to ensure that auto-enrolment terminology is straightforward, in line with the DWP’s and the Pension Regulator’s own aims.

We note that “someone authorised by the employer can sign the certificate”.  If the intention is that one employer can take responsibility for certification on behalf of all employers in a multi-employer scheme, it would be helpful for the guidance to make this clear.  Being able to use a central administration function will make it easier for multi-employer schemes to comply with their auto-enrolment obligations.

The draft guidance refers to significant changes in circumstances which occur in relation to a scheme or an employer that means the scheme can no longer satisfy the certification test.  While it will be obvious where certain events, such as corporate transactions, have an impact on an employer’s workforce, guidance on the extent to which monitoring is required during a certification period (as opposed to in conjunction with the renewal period) would be welcome.

Two areas which may cause difficulties for employers are in relation to flexible benefits and flexible retirement options.  Although the guidance makes reference to salary sacrifice arrangements, it does not cover other common options such as drawing benefits early while remaining in service, or flexible benefit packages which allow employees to select from a range of benefit options, including pensions.  Given the complexities involved for employers with such arrangements to ensure that the auto-enrolment requirements are met, additional guidance is needed.

It is unclear whether a certificate is required during the phasing period.  If so, both the guidance and the template certificate should be adapted to cover this period.

In relation to compliance and reporting, it would also be helpful for the guidance to state how the Pensions Regulator will monitor compliance with the new employer duties.  For example, will there be additional information to submit on the annual scheme return to demonstrate compliance?