The DWP has published concluding regulations that introduce a new better quality standard for employers using a Defined Benefit (DB) scheme to meet their auto enrolment responsibilities. The regulation will also streamline the communication process and remove certain categories of employees from the scope of auto-enrolment. The changes will come into force on 1 April 2015. The key points are:
- Currently employers using a DB scheme for auto enrolment must either be contracted off or satisfy the Test Scheme Standard (TSS). But with contracting out ceasing in 2016, the DWP has introduced a 3rd option, based on the fees to the scheme of the future accrual of active members’ benefits. It will require a minimum contribution rate of at least 10% of qualifying earnings, but with variations for DB schemes that don’t provide spouses’ benefits or those that use a another definition of pensionable earnings. The DWP has extended the definition of earnings so schemes which use an offset of the basic State pension or lower earnings limit can still pass this test.
- The number of auto enrolment notifications that employers need to hand out and the level of detail will be reduced and simplified – for example, the initial communication to employees who are active members of a qualifying scheme will no longer be required.
- Employers can choose if they want to auto-enrol or re-enrol employees in a notice period, those who have chosen to leave their qualifying scheme in the previous twelve months, those with any form of pension tax protection and former employees who have been paid a lump sum.
- Schemes can choose either to take advantage of the new rules or to continue using their existing processes.