Auto-enrolment and NEST

The government has issued a White Paper setting out its proposals for reform of the UK state pension scheme.

The Pensions Bill has completed its committee stage, and next moves to the report stage. In the meantime, notice of an amendment has been given to offer compensation for those individuals who fall within the judgment in R (on the application of Bradley and others) v Secretary of State for Work and Pensions. The amendments proposes extending the financial assistance scheme set up under the Pensions Act 2004. The government is unlikely to accept this clause.

The Pensions Bill received its third reading on 18 April 2007. The government also announced that the Financial Assistance Scheme would be extended to cover some solvent employers. Opposition amendments designed to create a pension protection lifeboat fund were defeated.

The Pensions Bill is to receive its second reading in the House of Lords on Monday 14 May 2007. For a copy of the bill in the form sent to the Lords, see Pensions Bill (HL Bill 61 06-07). (See House of Lords business.)

The Department for Work and Pensions (DWP) has announced that the new system of personal accounts, due to be introduced in 2012, will be run by an occupational pension scheme established under trust. John Hutton, Secretary of State for Work and Pensions, said that the scheme would face "the same level of regulation as all other trust-based occupational schemes". The personal accounts scheme will be run by a board of trustees, who will be independent of the government. Additionally, a members' panel will be set up to nominate a proportion of the trustees. The trustees will consult the panel on key decisions. Mr Hutton said that the government's priority was to focus the scheme on its target group: namely, employees who did not have access to a good occupational scheme. Some commentators may interpret this as an indication that the government intends to reverse its decision to increase the annual limit on contributions to £5,000, following sustained lobbying by the pensions and insurance industry (see Legal update, News round-up for the week ending 25 May 2007: Debate continues over personal accounts contribution cap). See Press release, Consumers to be at heart of new pensions saving scheme, DWP, 24 May 2007.

An updated version of the Pensions Bill has been published, following the committee stage in the House of Lords (see Pensions Bill). The new version incorporates various amendments, including several introduced by the government. Of these, the most significant relate to the existing provisions in the Bill that will abolish contracting-out of the state second pension on the defined contribution basis. In particular, most of the rules contained in existing regulations that require separate tracking of protected rights will now be removed. But the requirement that schemes should pay (or secure) dependants' pensions for surviving spouses or civil partners will be retained. The Bill also contains the new clauses relating to the pensions lifeboat fund and unclaimed assets recovery agency, inserted following the government defeat in the Lords last week (see Legal update, House of Lords votes for pensions lifeboat fund). These provisions are likely to be removed when the Bill returns to the Commons for its third reading. See Public Bills before Parliament: Pensions Bill.

The report stage of the Pensions Bill will take place in the House of Lords on Wednesday 4 July 2007. The Bill received its second reading in the Lords on 14 May 2007, and a new version has been published following amendments subsequently made in committee (see Legal update, Pensions Bill: updated version published). At the report stage, the government may attempt to remove the amendments made in committee relating to the pensions lifeboat fund (see Legal update, House of Lords votes for pensions lifeboat fund). See House of Lords, future business.

On 11 July 2007, the Pensions Bill received its third reading in the House of Lords. An amendment introduced by Lord Fowler was agreed, despite government opposition, which will provide for post-legislative scrutiny of the Bill four years after its enactment. An updated version of the Pensions Bill had previously been published following the committee and report stages in the House of Lords (see Pensions Bill). A summary of the amendments made in the Lords has also been published before the Bill returns to the Commons (see Lords amendments to the Pensions Bill). Amendments include a new clause 1(4) that was passed at the report stage on 4 July 2007. This provision will enable anyone below state pension age to pay voluntary class 3 National Insurance contributions at any time before retirement and buy additional basic state pension rights for up to nine years. Currently, individuals may only pay class 3 contributions for the preceding six years. See Lords Hansard: Pensions Bill, 11 July 2007 and Public bills before Parliament: Pensions Bill.

On 26 July 2007, the Pensions Act 2007 received Royal Assent. In the last-minute parliamentary "ping-pong" between Houses, the government refused to accept House of Lords' amendments which would have created a pension protection lifeboat fund and unclaimed assets agency (see Legal update, Pensions Bill: Lords amendments overturned). But the government accepted an amendment which provides for post-legislative scrutiny of the operation of the Act by the end of 2014 (section 24). The government also accepted an opposition amendment that will temporarily prohibit schemes that qualify for the Financial Assistance Scheme (FAS) from buying out benefits with insurers for nine months, unless the Secretary of State for Work and Pensions approves the transaction (section 19). Additionally, the government has announced that it has accepted the recommendation made by the Young review not to enforce a cut-off date for employer insolvency (see Legal update, FAS review of scheme assets: interim report published). The government had previously decided that for schemes to be eligible for the FAS, an employer insolvency event must have occurred by 31 August 2007. We will publish a full practice note summarising the main provisions of the Act in due course. See Commons Hansard, 25 July 2007 and Pensions Bill: progress.

On 5 December 2007, the Pensions Bill was introduced into Parliament. The Bill implements the latest stage of the government's pension reforms. The main provisions will impose new duties on employers to automatically enrol their employees into a personal accounts scheme or their own qualifying scheme from 2012, with minimum mandatory pensions contributions, and extend the powers of the Personal Accounts Delivery Authority. The Pensions Regulator will be given a key role in policing employers' compliance with the new requirements. The Bill will also implement several measures deriving from the government's deregulatory review, allow for compensation paid by the Pension Protection Fund to be included in a pension-sharing order on divorce, and introduce further technical legislative changes.

The government plans to amend the Pensions Bill 2007 to allow automatic enrolment into workplace personal pensions as part of the 2012 pensions reforms. The Bill already allows for auto-enrolment into occupational pension schemes (including personal accounts) but there were concerns that extending this to contract-based schemes would breach European consumer protection directives. Until now, the understanding has been that the directives prohibit contract-based schemes from automatically enrolling employees. Instead, these schemes have to operate an opt-in method (normally meaning that an employee has to sign an acceptance letter to join). The European Commission has now confirmed to the DWP that automatic enrolment into personal pensions that are provided by the employer (such as group personal pension plans, group SIPPs and group stakeholder schemes) will not offend the EU directives. This does not include personal pension arrangements that employees have obtained for themselves (even if their employer contributes to them). For the current draft of the Pensions Bill 2007, see Public Bills before Parliament: Pensions Bill. See Press release: Millions of savers to benefit from auto-enrolment into workplace schemes, DWP, 16 May 2008.

A look ahead at likely developments in pensions law in 2009.

The Pensions Act 2008 (Commencement No. 2) Order 2009 (SI 2009/82) has been made.

The Department for Work and Pensions has published a report on the findings of research carried out in April 2008 regarding employers and the workplace pension reforms.

Eleven sets of regulations relating to implementation of the 2012 pension reforms have been laid before Parliament and the Department for Work and Pensions has issued a response to its September 2009 consultation exercise on the draft versions.

The DWP has published the findings of an independent review into auto-enrolment, Making automatic enrolment work.

The Pensions Bill has received its second reading in the House of Lords.

An "Ask the team" article about how the new employer pension duties apply to employment agencies.