The Department for Work and Pensions (DWP) has issued its response to the consultation on the exemption of certain categories of worker from the scope of automatic enrolment. While the DWP considered a range of potential exemptions, it has decided that exemptions are only appropriate in a limited number of situations. In most cases, the DWP’s view is that the right for members to opt out after having been automatically enrolled in a pension scheme was the most suitable option for all other workers who do not wish to remain in pension saving.
The DWP has confirmed its intention to exclude the following categories of person from the scope of the auto-enrolment regime.
Tax protected status
Individuals with tax protected status for existing pension savings, such as fixed or enhanced protection, will not have to be auto-enrolled. Automatically enrolling such individuals into a pension scheme means that they could lose their tax protection or face significant tax charges if they do not opt out of the scheme within the one month opt-out period.
The difficulty with this exclusion is how an employer will know whether an employee has tax protection. It is likely therefore that the exemption will be framed to apply only where the employer is aware of an employee’s tax protected status, with the onus on the employee to make his employer aware.
Jobholders leaving employment
Employees who have handed in their notice or are under notice of dismissal are to be excluded if their period of notice spans their automatic enrolment (or re-enrolment) date.
The exemption is likely to be permissive only, so will allow employers to continue with the auto-enrolment of leavers where this is easier from an administrative point of view, for example, where the payroll system would not easily allow such individuals to be identified and excluded from the auto-enrolment process.
Individuals who have given notice of retirement
The intention is to exclude employees who have given notice of retirement if their notice period includes the automatic enrolment (or re-enrolment) date.
Some employers have chosen to contractually enrol all their workers into a pension scheme rather than enrolling only those who meet the auto-enrolment qualifying age and earnings criteria. When employees who have been contractually enrolled cancel their membership, they may still have to be automatically enrolled when they meet the auto-enrolment eligibility criteria even if they have only recently left the scheme.
The DWP has confirmed that, where an employer provides a pension scheme that is at least as good as the auto-enrolment minimum, the employer will not be forced to go through the auto-enrolment process almost immediately if the person chooses to cancel his membership after having been contractually enrolled in the scheme.
The proposed exemptions should give employers additional flexibility and reduce some of the administrative burden of the auto-enrolment process. From an employees’ perspective, it will avoid the need for opt-outs where it is not appropriate for the member to be enrolled for pension saving in the first place and, in the case of individuals with protected tax status, avoids the potentially very costly consequences of being automatically enrolled but failing to opt-out on time.
Full details of the exemptions will be revealed in due course in regulations, on which there will be a separate consultation, and we will update you on developments.