The government plans to introduce a new national ‘personal accounts’ pension system in 2012. From October of that year, all employers will be required to auto-enrol eligible employees into either the government’s new personal accounts scheme or, if it meets certain ‘qualifying’ criteria, the employer’s own pension arrangement.
The Department for Work and Pensions (DWP) has issued draft regulations setting out some of the proposed detail of the auto-enrolment requirements and a draft scheme order and rules for the personal accounts scheme. Further draft regulations on employer duties regarding auto-enrolment are due later this year.
This article describes ‘where we are now’ with regard to the basics of the personal accounts regime and the key features of the draft auto-enrolment regulations.
Personal accounts: a quick introduction
The key features of the personal accounts scheme are broadly as follows:
automatic enrolment requirement: an administrative burden
The draft regulations provide that an employer must ensure all eligible jobholders become active members of the personal accounts scheme or a qualifying scheme within 14 days of starting work or becoming eligible. During this 14-day period, the employer must arrange for certain information to be provided to the jobholder.
Significantly, where an employer decides to enrol eligible employees into its own qualifying scheme meeting certain additional requirements, the draft regulations allow the employer a (far longer) 90-day waiting period before the jobholder must be enrolled. This extra flexibility is designed to encourage employers to continue to operate their own (more generous) pension arrangements once personal accounts have been introduced.
Opting out and compulsory re-enrolment: further challenges
Once the jobholder has been enrolled in the scheme, they have a 30-day window of opportunity to opt out of scheme membership and obtain a refund of contributions.
The consultation paper proposes that individuals will only be able to obtain an opt-out form from the scheme in which they have been automatically enrolled (ie not from their employer). Employers will actually be prohibited from providing opt-out forms. This is designed to minimise the risk that the individual will be pressured by the employer to opt out.
However, the individual then has to send the form to the employer (not the scheme), which must then pass it on to the scheme within seven days of receipt. The draft regulations require the employer to tell an individual within five days where the individual has failed to follow the formal opt-out procedure correctly.
Refunds of contributions
The draft regulations provide that, where a jobholder opts out, a full refund of contributions must be paid to the employer and the jobholder.
It is the employer’s duty to refund contributions to the jobholder but the refund is not dependent on the employer receiving the money back from the scheme. The draft regulations say that the refund to the jobholder must be paid within 21 days.
Comments
Although the DWP’s stated policy aim is to minimise the overall burden for employers, the proposals seem cumbersome and difficult to administer. In addition, the joining timescales seem very tight. While the aim may be to ensure that workers are enrolled as quickly as possible, the requirements could cause difficulties and have cost implications, particularly for small employers.
It is hoped, however, that material changes will be made to the draft auto-enrolment regulations before they are finalised. In addition, further DWP consultation and regulations on employer duties regarding auto-enrolment (including compulsory re-enrolment, qualifying schemes criteria and certification) are planned for autumn 2009. It will therefore be some time before the final details of the new system become clear.
Catherine Salafia, solicitor,
Eversheds LLP.