Pensions Matter – March 2014
Print newsletter05/03/2014

Auto-enrolment – DWP’s response to exemption of certain categories of workers
The Department for Work and Pensions (DWP) has recently published its report in response to […]
The Department for Work and Pensions (DWP) has recently published its report in response to the consultation on the exemption of certain categories of workers who should not be included in the scope of auto-enrolment.
The proposed exemptions were set out in a consultation paper (published March 2013), alongside other proposals to simplify technical aspects of the auto-enrolment procedure, but were not included in the final amending regulations issued in October 2013.
Having considered the responses to the consultation, the DWP has now published a report which highlights the areas which it believes have a strong case for an exemption from auto-enrolment duties for certain employees.
The categories of workers that the DWP considers should be covered by the exemption include:
- employees who have tax protected status for existing savings
- employees who are about to leave employment
- employees who have given their employer notice of their immediate retirement
- employees who have recently cancelled membership having been contractually enrolled.
Employees who have tax protected status for existing savings
The Government has commented that there is a strong argument for exemption from auto-enrolment and re-enrolment for employees with some form of tax protected status for pension savings, for example individuals with enhanced or fixed protection. However, respondents have pointed out that there may be practical issues with such an exclusion since it would be hard for an employer to know which employee has tax protection.
It has been suggested that one solution to this issue would be to provide an exception where this would only apply when the employer is aware of such an individual’s tax status. How this is to be implemented is still to be seen.
Employees leaving employment
Respondents on the whole have agreed that employers should not be required to automatically enrol an employee who has since handed in his/her notice or is being dismissed and is working their notice period, where this period of notice spans their auto-enrolment or re-enrolment date.
The Government believes that there is a good case for excluding ‘leavers’. However, it does need to further consider practical problems such as payroll systems not being set up to record the date someone hands in their notice. The Government wants to ensure that any provisions are straightforward to put in place.
It is important to note this exception will not cover people at risk of redundancy.
Employees who have given notice of retirement
The consultation posed questions about whether auto-enrolment need apply to a scheme member who has handed in his/her notice to retire. Some respondents argued that given that such employees could still build up a small fund, such employees should therefore not be excluded. Other respondents argued the case that the exception should apply to affected employees who have reached maximum accrual in their employer’s scheme or who are already receiving benefits from the scheme or DB benefits from previous employment.
The Government’s considers that there is a case for excluding employees who have given notice of their intention to retire. It will develop proposals to exclude such employees where their retirement notice spans the auto enrolment and re-enrolment date. The Government believes the other scenarios raised were either (a) already covered by existing provisions or (b) the best course of action would be for the affected employee to opt-out.
Employees who have recently cancelled membership having been contractually enrolled.
Respondents highlighted that employees who opt-out of membership on a contractual basis should not be automatically enrolled shortly after. Respondents commented that this scenario is difficult to explain to workers, and provides an unnecessary administrative burden for all involved.
It seems the Government is in agreement with the above and is looking to address this issue as soon as possible in the next draft regulations.
Next Steps
The Government will publish its final proposals to the consultation as well as draft regulations in due course. These regulations will be made under the regulation-making power, which is contained in the current Pensions Bill, which is working its way through Parliament at the time of this newsletter.

Case law round-up – Pensions Matter, March 2014
An overview of key pension cases and their practical implications: McCoy (P-2319) – death benefits, […]
An overview of key pension cases and their practical implications:
McCoy (P-2319) – death benefits, reasonable for trustees to require discharge of liability before making payment.
The Pensions Ombudsman (PO) held that it was reasonable for the trustees of a self-invested personal pension to require the beneficiary of a lump sum death benefit to complete a form of discharge prior to paying out the discretionary benefit.
In reaching its decision, the PO referred to authorities that indicated upon the trustees making final distribution of the lump sum death benefit, a trustee will naturally want to ensure for itself the maximum security against possible future litigation.
This determination gives comfort to trustees, in that it is entirely reasonable to trustees to be discharged of their liabilities prior to paying out lump sum death benefits.
Yeshooa (PO-1719 and 1720) – assignment of retirement annuity contract to a third party is not possible.
This determination highlights that it is reasonable for a provider of an annuity contract to refuse to act on a purported assignment of the policy to a third party.
The PO threw out a complaint by the sisters of a policy holder, who in 1994 entered into a deed of assignment in favour of the sisters of the policy holder. Under the policy, the payment of benefits by way of an assignment would have breached a provision in the policy, which prohibits assignment.
The key point to note is that for retirement annuity contracts and also personal pensions, there is, under statute, no equivalent to the statutory prohibition on assignment or forfeiture in regard to occupational pension schemes. However, the PO was content to rely on the policy wording to conclude that the purported assignment was invalid.
Bradbury (PO-636) – imposing pensionable pay cap outside scheme rules did not breach implied terms.
An employer’s decision to cap pensionable salary increases in a final salary scheme to 1 per cent. through a contractual agreement instead of amending the scheme rules did not breach the implied duties of trust and confidence or good faith, arising from an employee’s contract of employment.
The PO commented that given the substantial deficits in the applicable scheme and its overall financial sustainability, the capping of pension salary increases through a contractual agreement was not irrational or perverse. Nor, given its situation, were they actions that no reasonable employer would make.
The outcome of this determination will give confidence to employers, in that they can legitimately amend benefit changes to DB schemes, without breaching their implied duties to their employees.

End of DB contracting out: ‘protected persons’ safe from statutory override
Following a consultation in January 2013, the Government has now confirmed that ‘protected persons’ will […]
Following a consultation in January 2013, the Government has now confirmed that ‘protected persons’ will not be prejudiced by the statutory override contained in the Pensions Bill, currently working its way through Parliament.
This override allows employers to offset the increased cost of National Insurance Contributions (NIC) (without trustee consent), which will follow as a result of the abolition of DB contracting out.
By way of background, ‘protected persons’ are employees of private sector employers that used to be employees of nationalised industries (for example, rail, electricity and coal) and who were members of their respective pension scheme.
Under legislation, ‘protected persons’ are entitled to benefit accrual on the same basis as those they enjoyed in the nationalised industries at the time of privatisation. The legislation restricts changes that private sector employers and trustees can make to their future pension benefits.
When the abolition of DB contracting-out comes into effect, ‘protected persons’, unlike their private sector counterparts, will not, without consent, be affected by changes made to schemes to offset the cost of increased NICs to the employer.

Olympic Airlines – Government exploring PPF amendments
Steve Webb has confirmed that the Government is “actively exploring” if it can amend the […]
Steve Webb has confirmed that the Government is “actively exploring” if it can amend the Pension Protection Fund (PPF) legislation in regard to employer insolvency, in order to allow members of the Olympic Airlines pension scheme to qualify for PPF compensation.
Steve Webb’s House of Commons written answer, follows a Court of Appeal decision in June 2013. The decision ruled that Olympic Airlines winding up in England did not amount to “economic activity” within the meaning of Article 3(2) of Council Regulation (EC) 1346/2000 (the Insolvency Regulation).
As foreign liquidations of companies do not count as qualifying insolvency events under section 127 of the Pensions Act 2004, the liquidation of Olympic Airlines did not trigger a PPF assessment period. Consequently, members of the scheme would not be entitled to PPF compensation.
At the time of writing this newsletter, we understand that leave to appeal this case to the Supreme Court has been granted. We will keep you updated on this matter as it progresses