Investments and charges
DC arrangements must have a default investment fund, though they can offer additional options to their members. If a member doesn’t make any investment decision, all their contributions will be invested in the default fund.
As of April 2015, the government introduced a charge cap of 0.75 per cent for active and deferred members of default funds of DC qualifying schemes. This default fund charge cap covers all member-borne charges and deductions excluding transaction costs. Any commission or active member discount structures must not take member-borne charges above this level. From April 2016 no qualifying schemes could contain an AMD or similar mechanism that results in higher charges for deferred members.
There is another change to consider: on September 14 2013, following a government review, legislation came into force effectively banning consultancy charges in auto-enrolment schemes. Originally, these regulations did not apply where the employer entered into such an agreement before May 10 2013. However, since April 2015 the ban applies to all qualifying workplace pension schemes.
Practical process
Employees must normally be enrolled as soon as they start work if they are over the age and earnings thresholds. However, employers can delay the auto-enrolment date by three months providing they both inform those affected in advance and give them the choice of opting in during the waiting period.
Employers have six weeks from the auto-enrolment date to enrol the employee into the scheme (backdated to day one) and provide him or her with the required information. The employee then has up to a month to opt out.
The employer cannot provide the opt-out form to the employee. However, any paper forms must be returned to the employer who is responsible for informing the scheme about the opt-out. Electronic forms will go direct to the scheme with an instant copy to the employer.
The employer will be responsible for deducting contributions for the employee from the first payday, and for making a refund if necessary if the employee opts out. The employer can delay making payments to the pension scheme until after the opt-out period ends, but otherwise will have to reclaim from the scheme should a member opt out.
Employees who opt out will have to be automatically re-enrolled every three years. There will be a single re-enrolment date every three years for each employer rather than a specific one for each member.
What if the employee does not meet the requirements?
There are two groups of employees who are not auto-enrolled, but who have the right to opt into the employer’s pension scheme. The employer will then being required to contribute. These groups are:
