NHS cash for pensions offer could open loophole
An NHS trust has come under scrutiny for offering nurses cash to opt out of the pension scheme, which experts have said could lead to other employers copying the move.
Auto-enrolment has been largely hailed as a success for dramatically increasing the number of people saving into a workplace pension, but the inertia of staying in a scheme rather than opting out could be overcome if employers begin offering other benefits to opt-out.
You can’t have a situation where the employer essentially bribes people to opt out of the scheme
No employer influence
The Oxleas NHS Foundation Trust offered newly qualified nurses standard pay and NHS pension, or higher pay if they opted out of the scheme.
The trust said in a statement: “We are offering our band 5 qualified nurses the choice of a higher headline salary if they decide not to take up the NHS pension scheme. Those who make this choice will still have access to the government’s Nest pension scheme. This is allowing us to compete with the rates of pay offered by nursing agencies.”
The Pensions Regulator’s guidance for employers states any employee’s decision to opt out must be taken freely and without being influenced by their employer. Potential inducements are tested to judge whether the “sole or main purpose of the particular action is to persuade or cause an individual to opt out of or leave their pension scheme, without becoming an active member of another scheme”.
A spokesperson for the regulator declined to comment on the NHS case, but said: “We treat inducement seriously and investigate reports of inducement on a case-by-case basis.”
The spokesperson added that some cases may be less clear cut than others without constituting inducement, “for example, where employers offer a flexible benefits package and give staff a genuinely free and fair choice as to whether they choose to stay in a scheme or take alternative benefits”, or “where the employer has no vested interest in the individual’s decision, it would not constitute inducement”.
Threat of copycats
Steve Webb, former pensions minister and director of policy at insurer Royal London, raised concerns. “You can’t have a situation where the employer essentially bribes people to opt out of the scheme… if the employer either way says, ‘Look, we’ll give you the cash’, you could see a whole loophole opening up.”
He added: “We know about this one because it’s a big employer. This could easily be going on in smaller employers… If it turns out this is within the law you’d need to change the law.”
Anna Rogers, senior partner at law firm Arc Pensions Law, agreed. “It’s a basic principle of auto-enrolment that you don’t bribe people to stay out.”
The rules around inducements were included in section 54 of the Pensions Act 2008.
Duncan Buchanan, partner at law firm Hogan Lovells, said: “When auto-enrolment came on, people were very worried the employers would say to their employees, ‘You could opt out of auto-enrolment and I’ll pay you’.”
He pointed out that it is illegal for employers to entice members to opt out. “When they designed the legislation they… made it hard to opt out of the scheme and put in a provision saying it’s unlawful for an employer to entice.”