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By Donia O'Loughlin | Published Dec 20, 2012

Gov’t clamps down on auto-enrolment deferrment loophole

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The Department for Work and Pensions has announced a clampdown on a potential loophole in the auto-enrolment rules that would allow firms with so-called ‘hybrid’ schemes to defer enrolling staff under a concession designed to mitigate the affect of the rules on defined benefit schemes.

Current rules allow companies with defined benefit or hybrid schemes to defer automatically enrolling existing staff until 2017. This is because the funding requirements for these types of schemes mean employers cannot take advantage of phasing-in of contributions, as can employers using a defined contribution scheme.

An amendment to the Pensions Act 2008 will tighten the rules, ensuring that only employers offering defined benefits to a jobholder - whether in a defined benefit or hybrid scheme - will be able to defer automatic enrolment until 2017.

DWP said in a statement that the amended the rules mean only those employees with access to a defined benefit - rather than simply all employees within a scheme offering defined benefits to some - can be deferred.

Steve Webb, pensions minister, said: “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 government’s move comes ahead of a new wave of workers - in firms with 30,000 to 49,999 staff - being automatically enrolled into a company pension scheme for the first time in January 2013.

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