UK News

Pensions reform - auto-enrolment - inducement and prohibited conduct

September 2012

Auto-enrolment came into effect for large employers on 1 October 2012 and the Pensions Regulator has published guidance setting out prohibited conduct by employers.

Background

Auto-enrolment is explained more fully in our article 'Pensions update – auto-enrolment' (please see the link to this article in the Resources section below). Employers will be required to automatically enrol certain employees into a pension scheme and make pension contributions on behalf of those employees.

The Pensions Regulator has published detailed guidance on pension workplace reform and this includes a section on safeguarding individuals. The safeguards prohibit the employer from doing certain things, both pre-employment and after the individual joins the pension scheme. This includes:

  • inducing employees to opt-out of the pension scheme;
  • unfairly treating employees who have not opted-out of the pension scheme; and
  • informing/implying to potential employees during the recruitment process that those employees who opt-out of the auto-enrolment pension scheme will be treated more favourably.

Where an employer provides a flexible benefits package which permits employees to choose from a range of benefits, including membership of the pension scheme, then this could be seen as an inducement. For example, an employee may choose to opt-out of the pension scheme in favour of another flexible benefit. Much will depend on the employer's intention in providing these benefits; If the purpose is to encourage employee to opt-out of the pension scheme then it is likely to be regarded as an inducement and therefore prohibited.

Penalties

There are fines of up to £50,000 for engaging in prohibited recruitment conduct or for inducing employees to opt-out. Employees who are subject to a detrimental or are dismissed for auto-enrolment related reasons may make a claim at an employment tribunal. Dismissal on auto-enrolment grounds is automatically unfair and the minimum service requirement does not apply.

Commentary

With the imminent introduction of auto-enrolment it is vital that employers understand their responsibilities and what they are and are not permitted to do.

Resources

Pensions update – auto-enrolment

The Pension Regulators’ Workplace pensions reform – detailed guidance

For further information or to discuss the issues raised, please contact David Widdowson, or Emma Clark on +44 (0)20 3051 5711.