Auto-enrolment is now entering a critical phase, with approximately 1.8 million small and micro-employers attaining their ‘Staging Date’ during this year and next.

Whilst our television screens beam the message, “don’t forget the workplace pension” as a large, multi-coloured monster called Workie bounds about, The Pensions Regulator is rattling its sabre even more loudly, in the form of increasing fines and naming and shaming for non-compliance of an employer’s legal obligations. This was shown with the example of Swindon Town FC.

Against this backdrop, the Department for Work and Pensions consulted on technical measures earlier this year that sought to further simplify the AE process, reduce burdens on employers, and on the draft regulations intended to achieve these changes.

A government response to the consultation was released in March 2016.

One simplification in particular will come as good news for two categories of employer whose Directors or Members are more likely to fund for their retirement via a Sipp or SSAS.

Exceptions to the employer duty

From 1 April 2015, the DWP introduced exceptions to the statutory employer duty to auto-enrol applicable employees, for certain categories of individual. These are:

• those with tax protected status for existing pension savings (for example, Enhanced Protection);
• those who have given, or been given, notice of termination of employment; and
• those who cancel membership of a qualifying scheme, or opt-out before automatic enrolment.

These exceptions effectively turn an employer duty into a power that the employer can choose to exercise.
Since the introduction of these exceptions, it became apparent that there were further groups of individuals, for whom AE was not intended for.

These are individuals who are either:

i) company directors; or
ii) genuine partners in Limited Liability Partnerships.

Following the government response to the consultation, a Statutory Instrument2 was laid before Parliament on 10 March 2016, and its provisions became effective from 6 April 2016.
The positive outcome for these two groups of individuals are now summarised below;

Company Directors

The DWP received representations suggesting that where a small business employs only its Directors, the employer should be exempted from the automatic enrolment duty - even where the Directors may be classed as ‘workers’ for automatic enrolment purposes.
The DWP agreed that Director-only companies should be given the discretion to be exempted from the automatic enrolment duty, stating that this group is not part of the ‘target audience’ for automatic enrolment.
Indeed, this group of individuals will probably have their own pension savings already; in all likelihood, within a SSAS or a (group) Sipp, and an exception for this group will reduce the burden on them, by preventing them having to go through the automatic enrolment process - only to then opt out.

Limited Liability Partnerships

Another exception to the automatic enrolment duties for genuine partners in Limited Liability Partnerships (LLPs) followed a Supreme Court decision in Clyde & Co LLP v Bates van Winklehof, which ruled that self-employed LLP members can be “workers”, as defined in employment law, and so could also be subject to the automatic enrolment duties.
The exemption therefore covers those genuine LLP members who may now be classed as workers, but are not “employees” for tax purposes.

The regulations turn the employer duty into a discretionary power where an individual is a member of an LLP and is a genuine partner. It is highly likely that these individuals are already saving for their retirement via a Sipp.

However, if employers find it easier to enrol all eligible workers, even where they may be members of LLPs and genuine partners, they can now do so.

These exceptions for individuals that are not the ‘core target audience’ for automatic enrolment are welcome, and now in force. They build on last year’s exceptions that help prevent the risk of individuals with Fixed or Enhanced Protection suffering substantial tax charges, where they fail to opt-out within the requisite timescales.

Off with the shackles

In summary, company directors and genuine partners in LLPs can now decide whether or not to undertake the employer obligations under automatic enrolment, rather than having to slavishly follow the statutory duties, only to then all opt-out, because they are already funding for their retirement through either a SSAS or a Sipp.

Contrary to the DWP’s media campaign, therefore, these individuals can forget the workplace pension.

I just hope someone’s told Workie!