An employer must not take, or fail to take, any action that results in a jobholder ceasing active membership of a qualifying pension scheme, or which results in such a scheme ceasing to be a qualifying scheme. It is important that any worker’s decision to opt out, or cease membership of, their pension scheme without joining another should be taken freely and without influence by the employer. Employers can continue to provide opt out forms until their staging date, but from staging date onwards, the form must be provided by the pension provider.
Treatment of workers
An employer must not try to screen job applicants on grounds relating to potential scheme membership – this is known as 'prohibited recruitment conduct'. An employer must not treat a worker unfairly or dismiss the worker on grounds related to employer duties. For example, an employer cannot deny a worker promotion or training opportunities because the worker has decided not to opt out of pension scheme membership. If an employer does so, the worker can enforce rights in an employment tribunal.
An inducement to breach the automatic enrolment safeguards is where ‘the sole or main purpose’ of the particular action is to persuade or cause an individual to opt out or cease membership of their pension scheme, without becoming an active member of another scheme.
The intention of the legislation is to encourage pension saving at a minimum level, not to restrict flexible benefits packages that employers wish to offer their workers. The individual retains the right to choose the make-up of their flexible benefits.
Employers must be confident that in offering such a package their sole or main purpose is not to induce individuals to opt out of a qualifying scheme. Although the job holder may choose not to complete an opt-out notice if they move to a non-qualifying scheme or section of an otherwise qualifying scheme, they are still giving up membership of a qualifying scheme. The employer must therefore still be confident that they can demonstrate that in offering membership of non-qualifying schemes or sections of an otherwise qualifying scheme as part of the overall package, their sole or main purpose is not to induce individuals to leave the qualifying scheme or section of the scheme.
Opting out decision
There may be individuals for whom opting out would be a sensible decision (for example, those with enhanced or fixed protection). However, this is a decision that they must make independently, seeking financial advice if appropriate.
An employer may feel that they know the individual and their circumstances well, and believe that they could benefit from opting out. However, employers should avoid giving this kind of advice as it is unlikely that they would know enough about the individual’s circumstances, or have the necessary expertise. Moreover, to provide advice in respect of personal pension schemes, the employer would need to be authorised by the Financial Services Authority.
Advice of this nature given by an employer could be considered to be an inducement.
Where an employer breaches s.50 of the Pensions Act 2008 by engaging in prohibited recruitment conduct, the Pensions Regulator has the power to issue a compliance notice requiring the employer to remedy the breach, or prevent it happening again. The employer may be subject to a fine not exceeding £50,000.
Where an employer breaches s.54 of the Pensions Act 2008, which prohibits inducing a worker to opt out of a pension scheme, the Pensions Regulator has the power to require it to put the worker back in the position in which he or she would have been had he or she not been induced out of the scheme, by paying any arrears of contributions due. The employer may also be subject to a fine not exceeding £50,000.
An employee who is subjected to a detriment or dismissed for asserting the right to auto-enrol (under s.55 of the Pensions Act 2008 and s.104D of the Employment Rights Act 1996 respectively) can make a claim to an employment tribunal for compensation. Dismissal on auto-enrolment grounds will be automatically unfair and the employee does not have to meet the minimum service requirement to claim unfair dismissal in these circumstances.
If employers make a mistake on the assessment, they will be required to rectify any errors and automatically enrol from the correct date. Where an employer consistently makes a mistake on the assessment, the regulator will look at this on a case by case basis and consider enforcement if necessary.