The Government's workplace pension reforms (due to be introduced in 2012) will have an impact on employment law as well as pensions law. The Pensions Act 2008 (the "Act") will prevent employers from encouraging employees to opt-out of the auto-enrolment provisions.
How does the Act impact on the workplace before, during and after employment?
The Act affects the employer before they have even hired the employee. An employer can be penalised if any statement or question made during the recruitment process suggests that an applicant's success may be determined by whether or not they opt out of automatic enrolment.
If the Pensions Regulator (TPR) is of the opinion that an employer has made such a statement then it may issue a compliance notice. If the employer fails to comply with such a notice then TPR may issue a penalty notice of up to £50,000.
The employer also needs to be aware of how the Act impacts on pensions throughout the employee's term of employment. The legislation provides that an employer must not take any action which induces a worker to give up or opt out of membership of a qualifying pension scheme (a scheme meeting the legislation's requirements) without becoming an active member of another qualifying pension scheme. Breaching this prohibition may result in the TPR issuing a compliance notice.
There is potential confusion as to what is considered as an inducement, particularly when it comes to flexible benefit packages. For example, TPR suggested that:
"an employer who offers a flexible benefit package which offered alternative benefits instead of the basic 3% employer contribution could be at risk of breaching the inducement clause".
There is also a risk that inducement could arise during collective bargaining discussions if there is evidence to suggest that an employer plans to forego pay rises or the provision of other benefits for employees due to their forthcoming obligations under the Act.
The new legislation also provides an employee with a right of action against the employer should they 'suffer a detriment' due to the employer taking/failing to take action as a result of the employee enforcing their rights under the Act. If the employee feels that they have suffered a detriment, they can complain to the Employment Tribunal.
Pensions have now impacted on the termination of employment. Dismissal shall be automatically unfair if the employee is dismissed because of any action to enforce an auto-enrolment requirement or because the employer's duties under the Act might apply.
The Act also inhibits employers from making any agreement to exclude or limit the operation of provisions of the Act or to prevent an employee enforcing their rights.