Auto enrolment may still feel as if it is some way off for most employers, but 2013 is the year many will be required to auto enrol their workforce into a qualifying scheme.
In preparation for this, laws recently came into force designed to prevent employers from taking steps to induce employees to opt out of pension schemes. These apply to all employers regardless of when their staging date is.
The aim of the new laws is to prevent employers from inducing employees to opt out of a qualifying pension scheme.
The Pensions Regulator's guidance on "the new safeguards for workers" explains that the purpose of the legislation is to help ensure the auto-enrolment regime works effectively and deters an 'unscrupulous minority' of employers from trying to gain an 'unfair commercial advantage' over compliant employers.
Typically, most enforcement action is likely to be by the Pensions Regulator, who has the power to impose fines, but an employee will be able to bring a complaint in an employment tribunal against an employer if he has been subjected to detriment or unfair dismissal arising from his employer's breach of the auto-enrolment regime.
An employee may also have a whistle-blowing claim if he believes he has suffered detriment or dismissal for making a protected disclosure in relation to an employer's non-compliance with the inducement/recruitment activity.
Key aspects of the requirements are:
- the employer must not take/ fail to take any action that results in a jobholder ceasing active membership of a qualifying pension scheme or which results in such a scheme ceasing to be a qualifying scheme
- any decision to opt out of/ leave an employer's pension scheme without joining another should be taken freely and without influence by the employer
- an employer may not screen job applicants on the grounds relating to potential pension scheme membership - this known as 'prohibited recruitment conduct'
- an employer must not treat a worker unfairly or dismiss the worker on grounds related to an employer's auto-enrolment duties - for example, an employer cannot deny a work promotion or training opportunities because a worker had decided not to opt out of pension scheme membership
Inducement is defined as any action taken by the employer, the sole or main purpose of which is to attempt to induce:
- a jobholder to opt out without becoming an active member of a qualifying scheme
- a jobholder or entitled worker to cease active membership of a pension scheme without becoming an active member of another scheme
The effect of inducement is irrelevant. The act of inducement alone is prohibited, even if it has no influence on the worker's actions.
The Pensions Regulator's guidance sets out some quite clear examples of inducement:
Telling jobholders/entitled workers that if they opt out/leave the scheme they will receive:
- extended contract (in the case of temporary workers)
- one off payment
- higher salary
Telling jobholders that unless they opt out of pension scheme or leave, the employer will threaten:
- withholding promotion
- withholding pay increases
The Pensions Regulator also comments on the example of a flexible benefits package where scheme membership is one of the benefits within that package. An individual may have a choice between other benefits rather than pension or a lower level of contributions than the minimum required under the auto-enrolment requirements.
The Regulator's guidance recognises that individuals should retain the right to choose the make up of their flexible benefits. The employer must still demonstrate that in offering the lower level of pension provisions as part of the package, the sole or main purpose of offering this is not inducement.
A particular problem may arise in relation to employees with enhanced or fixed protection. Such employees will not be exempt from the auto-enrolment requirements and it may actually be in their interests to opt out.
Employers may wish to bring this to such employees' attention, but employers will need to be careful that they do not do anything that could be considered an inducement to opting out.
Similarly, employers should take care not to act in a way that could be treated as giving financial advice.
That said, providing information about the effect of auto-enrolment on fixed protection or enhanced protection should not count as an inducement.
Prohibited recruitment contact
During the recruitment process, an employer or employer's representative must not ask any question or make any statement that states or implies that the job applicant's success could depend on whether they opt out of the auto-enrolment pension scheme.
This covers all aspects of the recruitment process from advertising the job, during the interview and in providing any information including terms and conditions.
Even where an employer's staging date is still time away, employers must take care in their communications with employees not to fall foul of these restrictions. In introducing any changes in existing pension provision a replacement scheme is usually offered.