Pension Reform - Simplification Update

Peninsula Team

January 23 2015

Over the next few months, we will be covering automatic enrolment subject matter in bite size chunks for your information, from preparation – to staging – to day-to-day process.

The Payroll Advice Service at Peninsula is a free service available to Peninsula customers and we are also available to advise our customers on automatic enrolment legislation

The Pension Regulator has confirmed a new rule that employers can use to help avoid having to pro-rata the first contributions when using a government approved auto–enrolment scheme (i.e. using qualifying earnings when calculating the contribution value). This is now being rolled out as a result of the consultation which was completed and published in 2013 – Technical Changes to Automatic Enrolment. The current guidance on The Pension Regulator website only currently refers to “special rules” when calculating the first contribution. It is expected to be updated in the near future.

When auto-enrolment first came into effect, the definition of auto-enrolment and pay reference periods meant that contributions were required from the first date of enrolment. If the assessment date fell part way through the pay reference period, this meant that a part period pension contribution would need to be deducted. Some employers utilised the maximum 3 month postponement period to avoid this scenario by lining up the end of the postponement period with the start of their pay reference period.

The recent update from The Pension Regulator is as follows:

“Where an employer has an assessment date that falls in the middle of a pay reference period and they are using qualifying earnings to calculate their contributions and the scheme that they are using to discharge their duties is a qualifying one, then recent amendments to the legislation allow for employers to deduct contributions with effect from the next full pay reference period and will negate the need for part-payment contributions.

When an employer is using qualifying earnings for contributions and the assessment date falls part way through a pay reference period, the employer will still assess their workers on the assessment date to determine the category of the worker. If the worker is an eligible jobholder, active membership of a qualifying pension scheme will start on the assessment date, but the contributions can start from the first day of the next full pay reference period.”

For existing pension schemes where qualifying earnings are not used for the calculation of contributions (e.g. based on basic salary only from the first pound), the pension scheme rules will determine whether part period contributions are expected and this should be checked with the pension provider.

For any Payroll advice, please call our dedicated team of Payroll Advice Consultants on 0844 892 2772 Option 3 and they will be able to assist you with any questions you have.

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