Workplace pension reform represents the biggest change to occupational pension provision for a generation. It will affect all UK employers and will dramatically alter the pension landscape. Concepts such as automatic enrolment, opt-ins and opt-outs, refunds and minimum employer contributions will become key employer compliance issues.
The Regulator is the body responsible for maximising compliance with employer duties and employment safeguards. In June 2012 it issued its "Compliance and enforcement strategy" and "Compliance and enforcement policy", providing much more detail on how the Regulator views its role and how it will police workplace pension reform.
All of this has created a lot of reading for employers. Fortunately, for time pressed pensions and HR managers, the new obligations can be easily summarised as things employers must do and things they can't.
Things employers must do
These are the minimum legal requirements - some employers will do more than the minimum for different groups of their workers.
- Provide information to workers on workplace pension reform (including, where applicable, rights to opt-in and/or opt-out)
- Ensure 'eligible jobholders' are either active members of a 'qualifying pension scheme' or are automatically enrolled into an 'automatic enrolment scheme'
- Enrol any 'non-eligible jobholders' into an automatic enrolment scheme if they request to join
- Enrol any 'entitled worker' into a pensions saving scheme if they request to join
- Process opt-in and opt-out requests in the prescribed time limits
- Stop contribution deductions following any opt-out and refund any contributions already deducted from the worker's pay within the prescribed time limits
- Register with the Regulator and provide the required information
- Automatically re-enrol any eligible jobholders who are not active members of a qualifying scheme every three years
Things employers must not do
- Induce any worker to opt out or cease membership of a qualifying pension scheme
- Do or fail to do something which results in the worker ceasing to be in active membership of a qualifying pension scheme whilst still employed by the employer
- Use prohibited recruitment conduct, i.e. make recruitment decisions based on whether a worker will opt out of automatic enrolment
- Treat a worker unfairly or dismiss the worker on grounds related to the employer's workplace pension reform duties
The things employers must do only apply from an employer's staging date. More detail on these is found in our comprehensive guide to WPR [insert link to the online version]. The things employers must not do, however, already apply to all UK employers. The two key safeguards - inducements and prohibited recruitment conduct - are explained in more detail below.
The Regulator has said that the "law relating to inducements is an important safeguard" and that "the minority of unscrupulous employers must be deterred from trying to gain an unfair commercial advantage over other compliant employers".
Inducements are any action taken by an employer where the sole or main purpose is to attempt to induce a worker to opt out or cease active membership of a pension scheme. Some inducements will be obvious and could include giving any worker who opts out:
- a one-off cash payment
- an additional day's holiday
- a pay rise
Alternatively, instead of offering to give their workers something, an employer may threaten to:
- withhold a pay rise
- make the worker redundant
- dismiss the worker
These would also be caught by the prohibition on treating a worker unfairly on grounds related to employer duties.
Most employers seeking compliance will not be tripped up by obvious cases of inducement. They might, however, fall foul of less clear-cut cases. For example, flexible benefit packages may give employees options on how they take their benefits. What if an employee could choose between day-care vouchers or gym membership and pension contributions? This may not be an inducement as long as the sole or main purpose was not to induce individuals to opt-out of pension scheme membership. Even if this is the case, do you have the paperwork in place to back-up your position?
Another potential pitfall involves giving advice to workers for whom opting out is a sensible decision. This could range from foreign seasonal workers who only expect to have UK earnings for a few months to highly paid executives who could lose enhanced or fixed pension protections. Employers need to be careful of any such advice, as the Regulator has made clear that this could amount to an inducement.
Prohibited recruitment conduct
The Regulator aims to deter employers from trying to screen out job applicants on the basis of whether they will or are likely to remain pension scheme members after automatic enrolment.
Avoiding prohibited recruitment conduct should be a lot easier for employers than avoiding inducements - questions on a form or in an interview asking about pensions are easier to spot than some forms of inducement.
The key to ensuring compliance for employers will be to ensure that everyone involved in the recruitment process is aware of prohibited recruitment conduct and that recruitment practices (e.g. application forms, online career portals, standard interview questions) are reviewed.