The government has announced plans to close a loophole in auto-enrolment legislation that could allow companies to defer auto-enrolment for an estimated four million workers until October 2017.
Pensions minister Steve Webb revealed yesterday that the Pensions Act 2008 would be amended to prevent employers who only offer new entrants access to the defined contribution element of a hybrid pension scheme to postpone auto-enrolment.
The ability to defer auto-enrolment for existing staff until 2017 had been intended for companies offering either a defined benefit scheme or a defined benefit option under a hybrid scheme. This is because they cannot take advantage of phasing-in minimum contributions in the same way employers using a DC scheme can.
Last month, consultancy LCP warned that the loophole meant the majority of the estimated 3,000 private sector employers due to auto-enrol over 4 million workers next year could push back their enrolments until 2017 without any compensatory backdating.
But, in a written ministerial statement laid yesterday, Webb said the government would introduce legislation 'at the earliest opportunity'. This would 'clarify the law and to provide certainty by preventing the avoidance of the automatic enrolment duty through the exploitation of an easement aimed only at employers who provide defined benefits under hybrid schemes or defined benefit schemes', he explained.
He explained: 'The legislation will amend the provisions of that Act relating to the transitional period for defined benefit and hybrid schemes, as well as the definitions of "hybrid scheme" and "defined benefit scheme".
Webb noted that the government's intention is for the legislation to have retrospective effect from the date of the announcement.
He added: '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.'
The ministerial statement was welcomed by Andy Cheseldine, principal at LCP, who said it offered 'much needed clarity and should bring the legislation back in line with the policy intention. What our clients typically want more than anything is certainty and this will help enormously.'