LCP has asked the DWP for urgent clarification regarding a significant loophole in the automatic enrolment legislation.
Any employer with a hybrid pension scheme - one offering both defined contribution ("DC") and defined benefit ("DB") benefits - good enough for automatic enrolment can use the transitional arrangements to defer automatic enrolment until 1 October 2017 for those of its workforce who had a pre-staging date right to join the scheme but chose not to do so. We understand that the policy intention was that this flexibility should be limited to those hybrid schemes that could not benefit from the phasing in of minimum contributions (because, for example, they gave the better of a DC and DB benefit). However, the definitions appear to have been drafted more broadly, enabling schemes making only DC benefits available to new entrants, within an otherwise mixed scheme, to qualify. This was not discovered during the Bill's passage through Parliament in 2008. Many affected employers are expected to have to auto-enrol their workers during 2013.
Andy Cheseldine of LCP said "This loophole appears to have remained unnoticed until now because of the sheer complexity of the legislation. We estimate that over 3,000 private sector employers were due to auto-enrol over 4 million workers in 2013 and the majority of these enrolments could be pushed back to 2017 without any compensatory backdating. We understand that primary legislation will be required to rectify this situation."
"We are advising our clients to keep a close eye on the outcome of this issue, so that they can carefully consider the impact on their auto-enrolment plans"?
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