HMRC fixed income protection guidance changes welcomed

CHANGES TO HM Revenue and Customs guidance for those with fixed income protection who are erroneously auto-enrolled have been welcomed.

However, a lawyer said the protection for those affected by system error “could have gone wider”, Accountancy Age’s sister publication Professional Pensions reports.

Previously, individuals with a protected lifetime allowance of £1.8m who were enrolled into a scheme against their wishes, when starting with a new employer, faced losing their increased allowance under HMRC’s rules.

New guidance has now been issued which means  that, as long as new employees have done everything in their power to stop the enrolment and the scheme has an appropriate opt-out clause, those enrolled due to system error will not be penalised.

Allen & Overy senior associate Jessica Kerslake welcomed the changes, which came after industry correspondence with HMRC.

However, Kerslake said there were a number of important considerations to ensure those individuals who have diligently informed employers of their fixed protection do not fall foul of accidental enrollment.

“Schemes must make sure they have the right opt out in place for new members, which would mean anyone who opts out is considered to never have joined the scheme. Alternatively, the personal pensions contract must be eligible to be cancelled under FSA cancellation rules,” she explained.

Kerslake said while the recent changes are a positive step, HMRC could have included all employees who opt out following system error, regardless of what status they are given under the arrangements of the scheme.

She added effective communications must be in place between HMRC, schemes, HR departments and employees, in order for the guidance to have the desired effect.

“It’s important schemes know they must check their opt-out rules. Many will already have this kind of opt-out in place. HR must also have the right processes in place to ensure they communicate when an employee has been enrolled in error,” she said.

“Obviously, there has to be some responsibility taken by the individual, so anyone with fixed protection who is joining a new employer should pay particular attention to the company scheme and how it could affect them. They must do everything in their power to avoid being enrolled.”

The new guidance applies only to those auto-enrolled outside of the statutory commitment of the Pensions Act 2008. Anyone facing a similar situation who is auto-enrolled through legal compulsion can be exempt from penalty providing they meet the one-month opt-out conditions in the regulations.