DWP to close automatic enrolment hybrid loophole

TheGovernment will ensure that transitional arrangements designed for companies with defined benefit or hybrid pension schemes are only used for workers that have access to defined benefits.

Last month Corporate Adviser revealed that 3,000 employers could avoid having to automatically enrol 4 million staff into pension schemes next year because of a loophole in the Pensions Act.

Current rules allow companies with defined benefit or hybrid schemes to defer automatically enrolling existing staff until 2017.This is because the funding requirements for these types of schemes mean employers cannot take advantage of phasing-in of contributions, as can employers using a defined contribution scheme.

The Government is amending the Pensions Act to put beyond doubt its intention that people with access solely to a defined contribution pension do not have their automatic enrolment deferred, even if they are in a hybrid scheme.

An amendment to the Pensions Act 2008 will tighten the rules, ensuring that only employers offering defined benefits to a jobholder – whether in a defined benefit or hybrid scheme – will be able to defer automatic enrolment until 2017. Under the change, all eligible jobholders who do not have access to defined benefits must be automatically enrolled from their staging date.

Minister for Pensions Steve Webb MP says: “Automatic enrolment is the most significant reform to pensions for a 100 years and will help up to 11 million people without a pension to start saving into one.

“It’s vital that firms comply with the spirit as well as the letter of the law. I’m sending out a clear message that all workers should be allowed to save for their retirement as soon as possible.

“With more and more of us living longer, starting early to build a decent pension pot is more important than ever. We’re taking the hassle out of saving in a pension.”

Andy Cheseldine, principal at LCP says: “We welcome this move as it offers much-needed clarity and brings the legislation in line with the policy intention. What clients want is certainty and the DWP’s move delivers that.”