The Department for Work and Pensions (DWP) has launched a consultation into whether auto-enrolment regulations relating to the quality of defined benefit (DB) schemes used for auto-enrolment purposes, and occupational pension provision for seafarers and offshore staff is working as intended.
The consultation, which will run until 30 August 2017, will form part of the DWP’s statutory review on automatic-enrolment. It will focus on reviewing the operation of two specific regulations under the 2008 Pensions Act to ensure the measures are working in practice and are not creating unintended consequences.
The consultation will look to gather insight on whether simplified tests introduced to measure the quality of DB pension schemes used to meet auto-enrolment duties are operating correctly and continue to deliver efficiencies for both employers and schemes. This includes reviewing tests established to ensure DB schemes used for auto-enrolment meet the minimum quality requirements set out in law. These comprise: a cost of accruals test, which is based on the cost to the scheme of the future accrual of active members’ benefits, and a test which enables certain hybrid schemes to use the money purchase quality requirements, based on a minimum contribution equivalent to 8% of qualifying earnings.
The simplified tests were introduced in April 2015 as a result of consultations carried out in 2013 and 2014. Previously, the minimum quality requirements were tested by virtue of a DB scheme being contracted out of the State Second Pension (Additional State Pension), or by meeting the test scheme standards which compares an existing DB scheme to a hypothetical DB scheme.
The consultation will also review whether secondary legislation that includes offshore employees and seafarers who are ordinarily based in the UK in an employer’s auto-enrolment duties is operating as intended. Regulations in the Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2012 and The Automatic Enrolment (Offshore Employment) Order 2012 require the government to review and publish a report on the effectiveness of this legislation by 1 July 2018 to establish whether the order should be allowed to expire, be revoked early or continue past the order’s expiry date of 1 July 2020.
The order currently states that seafarers and offshore employees who work, or ordinarily work, in the UK should be treated in the same way as land-based employees. This means they will be auto-enrolled into an occupational pension scheme if they meet the age and earnings criteria, or they will be offered the opportunity to join a workplace pension scheme if they do not meet automatic-enrolment criteria.
The call for evidence is looking to collect feedback from employers, employee representatives, pension industry professionals, actuaries, independent financial advisers, and employee benefits consultants.