Employers Effort to Avoid Pensions

In the first three months of 2018, The Pensions Regulator issued 35,662 enforcement notices against employers in breach of auto-enrolment rules. This is due to employers trying to encourage staff to opt out of the auto-enrolment pensions system in an attempt to cut costs.

What is auto-enrolment?

Auto-enrolment requires employers to enrol their employees into a workplace pension scheme and to make at least a minimum contribution on their behalf, unless workers have specifically opted out.

Between the introduction of auto-enrolment in 2012 and 2017, pension-scheme membership in the UK hit record highs, with 85% of staff employed by SME’s choosing to stay within the schemes set up for them, therefore suggesting the application of the ‘nudge theory’ is working.

Don’t speak too soon

In April, the minimum contribution employers are required to pay doubled from 1% of staff pay to 2%. This is set to rise again next April to 3%. Whilst for employees, minimum contributions have gone up from 1% to 3% and is due to rise to 5% next year. Concerns have been raised that these increases in the pension contributions required under auto-enrolment may result in an increase in opt-out rates.

However, strict rules state it is imperative employers must enrol all staff into the workplace pension scheme, and that it is illegal for employers to offer staff any inducement or encouragement to opt out. Earlier this year, the Pensions Regulator even warned that employers must be cautious when writing to employees when pointing out these forthcoming changes, as communication may be perceived as encouraging opting out.

Although employers without doubt will be put off by the increased cost of pension savings, regulators are determined to prevent employers from using these higher contribution rates as an excuse to reduce scheme membership in order to save themselves money.

Trying to ‘dodge’ the scheme

However, it has come to the attention of the regulator that cost-conscious employers are attempting to influence the behaviour of their employees. For example, staff are warned that the company’s finances are in difficulties and that cost savings need to be made, or that staff are being unofficially told that opting out could increase their chances of receiving a pay rise.

Employers should be careful to avoid doing anything that could be construed as encouraging employees to opt out.

For more information on auto-enrolment, contact Paul Windmill on 01923 224411 or at paul.windmill@myersclark.co.uk