The Budget – A Pensions Charter?

Automatic Enrolment

Sweeping new rules on maximum charges that can be applied to Qualifying Funds within a Work Place Pension that qualifies for Automatic Enrolment have been introduced from April 2015.

Changes to Charges

The Pension Minister Steve Webb has confirmed the charging cap on auto-enrolment default funds to be 0.75 per cent from April 2015. This will be subject for review in 2017. The government will then consider lowering it and including transaction costs.

Steve Webb has stated that, “as well as meeting the 0.75 per cent cap, from April 2016 schemes will be prohibited from taking money from people’s pension schemes to pay for sales commission.” In addition, “over the next 10 years the new charge cap will transfer around £200m from the profits of the pensions industry to the pockets of savers.”

Experts say the commission ban, could cost advisers £150m and 1,000 jobs.

New Exceptions for Workers

The new regulations introduce new exceptions for workers:

  •  Who are in a notice period
  •  Who have ceased active membership of a qualifying pension scheme
  •  Who have HMRC tax protected status for their pension savings

For workers who have been given or have themselves given notice to leave employment before or up to 6 weeks after, the automatic enrolment (AE) date or the automatic re-enrolment (Re-AE) date the employer may choose whether to enrol them into a qualifying pension scheme. If the employer chooses not to automatically enrol/re-enrol the employer will have no further duty until the next cyclical re-enrolment date.

New Exceptions for Workers

The number of letters required has also been reduced and the information they contain simplified. From 1 April 2015, there are only four occasions when communications are needed:

  •  Enrolling workers
  •  Using postponement (one letter)
  •  Workers have a right to opt in/join a scheme
  •  When applying the transitional period.

The requirement to give separate opt in and joining information when the worker changes category is removed, so the employer may now combine this information. The practical effect of this, is that the employer no longer needs to monitor workers to identify when they change category from entitled worker to jobholder (or vice versa), as the relevant information on both opt in and joining is given up front. This simplifies the assessment process, so the employer only needs to identify two subsets of their workforce; those who must be automatically enrolled and those who do not.

The entitled worker and non-eligible jobholder tailored letters are no longer required. If a worker is already a member of a qualifying scheme at staging, there is no longer a requirement to inform them

Changes to Qualifying Earnings

Every year, the Department for Work and Pensions (DWP) reviews the earnings thresholds for automatic enrolment. Where there’s a change, these are published on The Pensions Regulator website to take effect from the start of the next tax year. The Expected annual earnings thresholds for 2015 – 2016 tax year are as follows:

  •  Lower level of qualifying earnings £5,824
  • Upper level of qualifying earnings £42,385
  • Earnings trigger for automatic enrolment no change at £10,000

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