Companies face fines of up to £10,000 a day for ‘inducing’ an opt out from auto enrolment

by Oscar James on June 6, 2012

News emerged this week that the Pensions Regulator has taken steps to ensure that employers do no induce their staff from opting out of pension auto enrolment. Starting with the largest companies this Autumn, employers will be compelled to offer all staff the chance to join a qualifying workplace pension scheme if they do not already do so. The employer will be obliged to contribute 1% towards each employee’s pension, rising to 2% in 2016 and then 3% in 2017. With employer’s having to make contributions to individual’s pension funds, some for the fierst time, the temptation maybe there to induce staff to opt out of the scheme. It is expected that as many as 1 in 3  staff will do this regardless as they will either not be able to afford to make the necessary personal contributions each month or they do not trust pension saving in general. However what the Regulator will want to avoid is employer’s doing anything that would persuade employees from opting out.

Auto enrolment is being introduced in phases starting with those companies with more than 10,000 staff this year. However the laws regarding ‘inducement’  will come into effect this July. The Regulator defined inducement to opt out as any action that has ‘the sole or main purpose‘ to cause a worker to opt out of the NEST scheme. For example, a company cannot infer that an application for employment maybe more successful if the individual opts out of the pensions scheme. The penalties for such actions are hefty and could reach as high as £10,000 a day for the largest companies if found guilty. Toby Christie from the Regulator said that… “…automatic enrolment will make saving for retirement the default position for millions of people in the UK. Individuals will be able to opt-out of an automatic enrolment scheme, but the decision to stop saving for retirement is a major step and should be the individual’s own. From 1 July 2012, employers will be banned from offering incentives to their workers to opt out. This will include refusing to employ someone because they want to join the company pension scheme.” Mr Christie added that his organisation would also take action against any company who tried to do this via a third party such as an external consultant. He warned employers against raising any questions with prospective employees indicating that the success of the application would be impacted by their decision over whether to opt out of the pension scheme. Other forms of inducement could include a promise of a renewed contract, higher salary, more annual leave or a promise of promotion.

Until auto enrolment comes into force it is impossible to say how many employers would go down this route of inducing employees to opt out of the pension scheme. Clearly for prospective employees on high salaries an opt out woud save a company a significant sum of money over the lifetime of the employment. However with the potential PR fall out plus a fine of up to £10,000 per day, many employers will no doubt think very carefully before they embarked upon action such as this.

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