The introduction of the automatic enrolment scheme in October 2012 signalled a new era in UK employer pension provisions, and with the larger UK employers having already complied with the auto-enrolment scheme, soon vast amounts of small and medium-sized employers will reach their auto-enrolment staging date before all businesses in the UK will have to meet auto-enrolment duties by 1 April 2017.

The largest UK employers who joined the regime in 2012 and 2013 will need to begin planning for re-enrolment. In a process known as cyclical re-enrolment, employers must re-enrol eligible jobholders (defined as workers aged 22 or over, but below state pension age and who work in the UK earning an annual figure of £10,000 or more) every three years.

The cyclical re-enrolment duty normally applies to eligible jobholders who have already had an auto-enrolment date with that employer, with some exceptions that have been put into place since 1 April 2015. These exceptions include: workers during their notice period, where notice is given by the employer or the worker within six weeks after the auto-enrolment or re-enrolment date, opt out or cancel membership of a qualifying scheme within the 12-month period before the employer’s staging date, or re-enrolment date as well as workers with a tax-protected status.

Employers should also be reminded about their continual auto-enrolment duties, as even when an employer has reached its re-enrolment date, auto-enrolment will continue to apply to them when hiring new workers and existing workers, if a birthday or pay rise means that they become an ‘eligible jobholder’.

As employers approach re-enrolment dates they should consider the changes to the regime that have been made since October 2012. The most notable being that contracted-out defined benefit schemes will no longer meet the ‘quality requirements’ automatically, so employers that have used these schemes in the past will need to certify that their scheme meets one of the quality tests from April 2016. Employers should also be aware of further changes to the regime, which may affect how they implement re-enrolment.

Further reforms to the UK pension systems are soon to be introduced due to the ripple effect caused by auto-enrolment, with the Government considering eliminating short service refunds arising from auto-enrolment. Moreover, a system is soon to be introduced for the convenience of both employers and employees under which defined contribution (DC) accounts of workers who leave a workplace pension scheme before they have been in it for two years and worth less than a threshold expected to be £10,000, will be automatically transferred to the worker’s next DC auto-enrolment scheme. The aim of these modifications is for pension pots to follow the worker from job to job, allowing them to accrue one large pension pot, rather than multiple small DC pots.
For further information, please contact Koichiro Nakada – Head of Japan Business Group (koichiro.nakada@lewissilkin.com) and Yoko Nakada - Senior Associate, Deputy Head of Japan Business Group (yoko.nakada@lewissilkin.com).
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