The DWP has issued a consultation paper today containing proposals aimed at further simplifying the automatic enrolment framework to ease the burden on employers, particularly small and micro businesses that have started to enrol their eligible workers into a workplace pension scheme. These measures will introduce:
- A simpler process for the re-declaration of compliance
- A simpler process to make it easier for employers to bring their staging date forward
- Further exceptions to the employer duties in certain circumstances, e.g. company directors and partners in LLPs
The consultation only runs until 16th February 2016. A response will be published in early March with a view to making the regulations in the same month to take effect from April 2016.
The DWP also wants to ensure that those who will benefit most from pension saving continue to be automatically enrolled and that there are no unintended consequences for individual savers.
Exceptions to the employer duty
It became apparent during the early days of auto enrolment that pension saving, or further pension saving, may not be appropriate for everyone. Changes that took effect from 1st April 2015 excepted the following individuals from having to be auto enrolled:
- Those with tax protected status for existing pension savings, e.g. enhanced or fixed protection
- Those who have given or been given notice of termination of employment and
- Those who cancel membership of a qualifying scheme or opt out before automatic enrolment
Since the introduction of these exceptions it has become apparent that there are further groups of individuals for whom automatic enrolment may not be appropriate. These are individuals who are:
- Company directors and
- Genuine partners in Limited Liability Partnerships (LLPs)
Company directors
In a show of common sense and following representations from businesses, proposals are included so that where a small business employs only its Directors, then the business (employer) should be exempted from the automatic enrolment duty even where the Directors may be classed as ‘workers’ for automatic enrolment purposes. At the moment, section 90 of the 2008 Act operates to exempt company directors from the definition of ‘worker’ unless they are employed under a contract of employment and there is at least one other person employed under a contract of employment. The rationale being that in these circumstances Directors should be given the opportunity to decide at their own Board meeting whether they want a pension or not and would not gain anything from automatic enrolment.
The DWP thinks there is a strong case that Director only companies where two or more directors have contracts of employment should be given the discretion to be exempted from the automatic enrolment duty. This group is not part of the target audience for automatic enrolment and such individuals are also likely to have their own pension saving so an exception for this group will reduce the burden through preventing them having to go through the automatic enrolment process only to opt out. These provisions are not limited to small businesses. Although the policy intention is to reduce the burdens on small businesses, the exception is to be made available to all businesses. Furthermore, where the company takes on one or more workers in addition to the directors, the company will have employer duties in relation to those workers and the DWP would welcome views on whether any companies who employ workers, of whom one or more are Directors, should be given the discretion to exempt those Directors from the duty to enrol where they may have a contract of employment with the company. The draft regulations have been produced on the basis of extending the exemption to include this group of Directors as well as Director only companies.
Limited Liability Partnerships (LLPs)
Stakeholders have suggested creating an exception to the automatic enrolment duties for partners in Limited Liability Partnerships (LLPs). The issue relating to LLPs arose following a recent Supreme Court decision in Clyde & Co LLP v Bates van Winklehof that self-employed LLP members can be “workers” as defined in Employment law and so could also be subject to the automatic enrolment duties. Like Directors of companies the DWP thinks there is a strong case for LLPs who have genuine partners to be given the discretion to exempt those partners from the employer duties. In providing for this exemption the DWP wishes to ensure it is only genuine partners that are able to be excluded from the duties and not those individuals who are actual employees.
Tax protected status
Legislation will be amended to provide the discretion for employers under automatic enrolment legislation to be exempt from the duties in relation to anyone with the new lifetime allowance protections from 6th April 2016 in the same way as already applies to the existing forms of protection.
Full details of these and other proposed changes are available in the consultation paper, which can be found by clicking here.
