Introduced by the government in the Pensions Act 2008, the legislation implementing the main provisions relating to automatic pension enrolment (auto-enrolment) was brought into force on 30 June 2012 by the Pensions Act 2008 (Commencement No 13) Order 2012 (SI2012/1682).From the 1 October 2012 all employers with over 1200 employees in their PAYE scheme as at 1 April 2012 have been obliged to automatically enrol eligible jobholders into an auto-enrolment scheme unless they are already active members of a qualifying pension scheme. This process will continue to be phased in according to employer PAYE scheme size and will not be completed for all existing employers until April 2017.

New Employee Safeguards from 1 July 2012

Whilst most provisions relating to auto-enrolment do not come into effect until October 2012, employers do need to be aware that a number of safeguards introduced to protect employee [1] rights are now in force and that they could inadvertently fall foul of this legislation.

Prohibited Recruitment Conduct

An employer is now prohibited from selecting employees on the grounds that they may or may not choose to opt out of a pension scheme provided by the employer to meet the requirements of auto-enrolment. This means that in any recruitment process an employer or its representatives must not ask any question, or make any statement that either states or implies that a job applicant’s success could depend on whether or not they opt out of an auto-enrolment pension scheme. Such a question or statement could arise in any one of the following processes:

  • the wording of an advert or invitation to apply for a position,
  • the request for information on an application form,
  • during an interview,
  • proposing terms and conditions.

Employers that contravene the prohibited recruitment conduct will be subject to fixed penalties ranging from £1,000 for employers with one to four employees, to £5,000 with 250 or more workers.

Prohibited Inducements

To ensure that the concept of employee and employer contributions becomes an accepted practice, it is important that any decision to opt out, or leave an auto-enrolment scheme should be taken freely and without being influenced by the employer.

An act by an employer that is considered an inducement to the employee to opt out of a qualifying pension scheme when the employee is initially entered in to it or to cease active membership of a pension scheme without becoming an active member of another scheme is now prohibited.

Employers should note that it does not matter whether the inducement successfully persuades the person to opt out or cease membership of another scheme and that it is the action taken by the employer, with the intention to induce, that could be a breach of the law. Employers should also be aware that these prohibitions apply to existing pension schemes that may be non qualifying pension schemes for the purpose of auto- enrolment.

The key test that an employer needs to address when it is considering any particular action and has concerns that it could be regarded as inducement is as follows:

Is the ‘sole or main purpose’ of the particular action intended to persuade or cause an individual to opt out of or leave their pension scheme, without becoming an active member of another scheme?

An employee who encounters an unlawful inducement must complain to the Pensions Regulator within six months of the contravention if they wish to take an action against their employer, although the Regulator may look back at the employer’s action in the preceding four years. The Regulator may impose a fine of up to £50,000 on an employer who contravenes the prohibition against inducing opt outs.

Detrimental Treatment and Unfair Dismissal

An employer must not treat an employee unfairly or dismiss an employee, on grounds related to the auto-enrolment legislation, if an employee has taken action to enforce their auto-enrolment rights, or if the employer has been prosecuted for wilfully failing to comply with its duties.  For example, an employer cannot deny an employee promotion or other training opportunities because the employee has decided not to opt out of an auto-enrolment scheme. Any such are likely to be automatically unfair and an employee will be able to bring proceedings in an employment tribunal.

Employer Compliance

If an employer does not comply with its duties or co-operate with the Regulator, it may face enforcement action by the Regulator.

For minor breaches the Regulator may issue warning letters highlighting any breaches of duty that an employer has knowingly or unknowingly made, setting out a time frame for compliance.

If a breach is not remedied, the Regulator can order two levels of penalties:

  • A Fixed Penalty notice of £400 which will be issued if an employer has failed to comply with any enforcement or improvement notices issued to it, or
  • Escalating penalty notices can be issued for more serious or persistent breaches. The Regulator will operate a system of escalating penalties that vary according to employer size, ranging from £50 a day for employers with one to four employees to £10,000 a day for those with 500 or more employees.

Certain acts or omissions by an employer can also amount to criminal offences. An offence is committed by an employer who wilfully fails to comply with auto-enrolment, automatic re-enrolment and the jobholder’s right to opt in. A person found guilty of one of these offenses will be liable on conviction to imprisonment or a fine or both.