7 exceptions to the rule when it comes to workplace pension scheme enrolment
However, there are currently seven circumstances where the employer duties to enrol an eligible jobholder, non-eligible jobholder or entitled worker do not apply. In addition, with some of the exceptions, the employer can choose whether to apply them or not. This may be for ease of internal administration.
Exceptions to the rule
With many employers looking towards their first auto-enrolment window or approaching their first re-enrolment it is worth reminding employers of the exceptions to the rules, including those introduced in 2015 and more recently in April 2016.
1) A worker who has opted out or ceased active membership of a qualifying scheme in the previous 12 months.
2) A worker who has given notice or been given notice of the end of their employment.
3) A worker who meets the definition of a ‘qualifying person’ for the purposes of separate UK legislation on occupational pension schemes and cross border activities within the European Union.
4) A worker who has been paid a winding up lump sum payment whilst in the employment of the employer, and during the 12-month period that started on the date the payment was made, the worker: ceased employment with the employer after the payment was paid, and was subsequently re-employed by the same employer.
5) A worker who holds the office of a director of the employer. This exception covers anyone holding office as a director. This does not include a person who is a director in name only.
In the case of a company, it means a director formally appointed under the Companies Act 2006, and also anyone acting as a director in the sense of having a decision- making role in the corporate governance of the company even if they have not been properly appointed.
In the case of corporate bodies other than companies, it means anyone holding an office of director created by the establishing legislation or Royal Charter.
6) A worker who is a member (partner) in a limited liability partnership and is not treated for income tax purposes as being employed by that limited liability partnership under section 863a of the Income Tax (Trading and other Income) Act 2005 (HM Revenue & Customs salaried members’ rules).
7) A worker where the employer has reasonable grounds to believe the worker is protected from tax charges on their pension savings under HM Revenue & Customs primary, enhanced, fixed or individual protection requirements.
Under these provisions, a worker may have:
- Primary protection
- Enhanced protection
- Fixed protection 2012 and 2014, or
- Individual protection 2014
This exception applies where an employer has reasonable grounds to believe that a worker has one of these protections from tax charges on their pension savings.
In the Pension Regulator’s view, ‘having reasonable grounds to believe’ means that the employer must actually believe the worker has the protection, and there must be evidence which would lead a reasonable person to believe this. This does make it an individual’s responsibility to notify and provide evidence of protection to an employer as well as checking that the employer is willing to apply the exception.
The lifetime allowance reduction to £1 million from April 2016 has seen the introduction of two new protections, fixed protection 2016 and individual protection 2016. The Department for Work and Pensions confirms that it will legislate to add the new protections created to the list of exceptions.
The additional exceptions give employers the opportunity to avoid additional administration for employees who are likely to opt out, especially company directors and those with protection; however, care will still be needed to ensure that an employer’s duty to their employees remains.
Karena Woodall is a consultant at Mattioli Woods.
This article was provided by Mattioli Woods.
