The Department for Work and Pensions (DWP) has said it will address a 'loophole' in legislation which could delay auto-enrolment for up to 4 million employees who are offered a mix of defined benefit and defined contribution pensions.
Pensions consultancy Lane Clark & Peacock (LCP) said rules covering the auto-enrolment of employers which operate a hybrid of defined benefit (DB) and defined contribution (DC) schemes, have been drafted too broadly and need urgent revision.
Currently auto-enrolment rules allow any hybrid DB and DC scheme, which is eligible for auto-enrolment. to defer auto-enrolment until 1 October 2017 for those of its workforce who had a pre-staging date right to join the scheme but chose not to do so.
This rule was only intended to apply to hybrid schemes that would not benefit from the phasing in of minimum contributions, because they already offer new entrants the better of the DC or DB arrangement.
However LCP said the definitions appear to have been drafted more broadly, enabling schemes to qualify that only make DC benefits available to new entrants.
LCP said this was not discovered during the bill’s passage through parliament in 2008. Many affected employers are expected to have to auto-enrol their workers during 2013.
Andy Cheseldine of LCP said: ‘This loophole appears to have remained unnoticed until now because of the sheer complexity of the legislation. We estimate that over 3,000 private sector employers were due to auto-enrol over four million workers in 2013 and the majority of these enrolments could be pushed back to 2017 without any compensatory backdating. We understand that primary legislation will be required to rectify this situation.’
However a spokesman for the DWP said a delay to auto-enrolment was not the aim of the legislation.
'We are grateful to LCP for bringing this to our attention and are looking at the issue. Our intention remains that transitional arrangements only apply to employers who automatically enrol their existing workforce into the hybrid or defined benefit element of their pension scheme.
‘In addition, all new members of staff joining these firms after their staging date will be automatically enrolled - and existing staff can still choose to opt in.'