Norfolk, Kent and Essex local authority schemes reveal how they help their employers comply with auto-enrolment legislation
Auto-enrolment safeguards came into place on July 1 to prevent employers inducing members to leave the scheme.
Overview of new legislation
The new law makes the following requirements on employers:
Not to induce workers to opt out or cease their membership of the qualifying pension scheme;
Not to indicate during a recruitment process that a worker’s decision to opt out of automatic enrolment will affect the outcome;
Not to do, or fail to do, something which results in the worker ceasing to be in active membership while still employed by the employer.
Norfolk is one of a number of local authority schemes – including Kent and Essex – which have put in measures to help employers comply with the safeguards.
Nicola Mark, head of the £1.9bn Norfolk Pension Fund, said: “This is an important piece of legislation, which is why we provided information to our employers, although ultimately compliance with the requirements of auto-enrolment is their responsibility.”
This is one of the first pieces of legislation that will make auto-enrolment a reality for millions of employers.
Auto-enrolment will result in significantly higher benefit costs for many employers, and the safeguards prevent them from inducing staff to opt out of the pension scheme.
“The safeguards have been brought in in advance of most employers’ staging dates, and is effectively shutting the stable door before the horse has bolted,” said Nicola Rondel, senior associate at Hogan Lovells.
The legislation is aimed at employers, who can be fined up to £5,000 for non-compliance.
Although schemes will not be punished if the safeguards are breached, a number of local authority funds are helping their employers prepare in a bid to ensure auto-enrolment runs smoothly and members are not affected.
Mark added: “This is important because until now it was probably inevitable that costs have been a major reason for companies discouraging people from joining a pension scheme.”
Scheme involvement
The implementation of this new legislation is not a significant expense for pension schemes, since it is the employer’s responsibility rather than the schemes.
All we can do is inform the employers that the legislation now exists and they need to comply
Nicola Mark, Norfolk
“All we can do is inform the employers that the legislation now exists and they need to comply,” said Mark.
“If they choose not to abide by the legislation, that is a matter for the employer and the regulator,”
Norfolk Pension Fund – which has 63,640 members, of whom 28,405 are active – has 140 different employers contributing to the scheme. These include:
the county council;
district councils;
charities;
non-uniformed fire and police staff;
non-teaching staff in schools and colleges; and
an increasing number of private sector employers, reflecting the changing provision of public services.
Monitoring whether all employers comply with the legislation will ultimately be the responsibility of the regulator.
Other pension funds are also taking steps to aid compliance with the new legislation.
The £2bn Kent County Council Pension Fund does not currently have a pension opt-out form.
Employees have to write to the employer to opt-out, which deputy pensions manager Barbara Cheatle said helped reduce the risk of the employer inducing staff to leave.
But the pension fund will be changing this policy in order to comply with auto-enrolment, adding an opt-out form to its website.
“[The employer] can make [members] aware they can opt out, but they cannot induce them, as the form has to come from our website,” Cheatle added.
The £3bn Essex Pension Fund has adopted a similar policy. It has instructed employers they can no longer issue opt-out forms directly to their employees.
Instead, all employees interested in opting out will be asked by their employers to print out the form from the scheme’s website, or to contact the office and request the form.
Tricky areas for consideration
Companies need to pay special attention to their recruitment practices. They may have to carry out some internal education of recruitment teams to outline what practices are allowed under the new legislation.
Very large companies need to ensure line managers are up to speed with these changes
Barry Mack, Hymans Robertson
Barry Mack, head of governance and plan management at Hymans Robertson, said: “Very large companies with multiple divisions responsible for their own costs need to ensure line managers are up to speed with these changes.”
The legislation focuses on a test of whether the sole or main purpose of a company’s policy is to induce a worker, or potential worker, out of auto-enrolment.
But it is not always this clear cut. For example, offering non-pension options on a flexible benefit package might be seen as an inducement.
The regulator has indicated it will initially take a softer approach to any company that is deemed to have induced its employees out of the pension scheme.
To begin with, the regulator is more likely to issue compliance notices which will tell employers they are in breach of the legislation and what they need to do to comply. This can include making up missing contributions.
Over time, however, the regulator will take a tougher stance and pursue persistent non-compliance.
It can impose fixed fines of up to £5,000 for a company with more than 250 employees in its PAYE scheme where the non-compliance persists.
